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Credit Card Refinancing: A Complete Guide to Getting the Best Rate

On the surface, paying off credit card debt may seem like a never-ending, uphill battle. But, with a little planning, exploration, and the proper tools, you’ll be pleasantly surprised at the progress you can make.

February 16, 2021

Life comes at you fast, whether that’s an unexpected layoff, hefty medical bills, or a new baby on the way. And, in any of these cases, you may find yourself facing a seemingly unmanageable amount of credit card debt. If so, you’re not alone.

Nearly 120 million Americans were carrying credit card debt in 2020, with 23% of consumers adding to that debt during the pandemic.

Managing and lowering your credit card debt while also tackling work, family obligations, and more can seem overwhelming. But once you take that first step of addressing your financial health, you’ll be better suited to improve all other aspects of your life.

Credit card refinancing is one method to start chipping away at your debt. Here’s everything you need to know about this process.

What is credit card refinancing?

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Credit card refinancing involves moving a credit card balance from one card to another. If you have a high balance with a costly interest rate, you can transfer what you owe onto a different card with a lower introductory rate. The introductory period typically lasts around six months, with some of the top credit cards’ rates lasting as long as 18-24 months.

The longer the introductory period, the longer you’ll have to pay off your current debt without the burden of interest expenses from your lender.

In some cases, the process of credit card refinancing can also be considered debt consolidation, where you take multiple cards and put them together for one single monthly payment.

How does refinancing work?

Consider you have $5,000 in credit card debt on a card that charges 20% interest. If you qualify for a 0% interest credit card, you could transfer that $5,000 and save $1,000 per year with your new card. These kinds of savings add up fast when you’re in a bind and trying to get out of endless credit card debt with your lender.

While this can be a good way to pay off credit card debt, not everyone qualifies for these zero-percent interest rates. Refinancing credit card debt with a no-interest credit card typically requires a good credit score.

That said, you can also refinance debt with a low-interest credit card or with a personal loan—the key is to find a lower interest rate than your current one to reduce the amount of interest expenses you pay (more on the ways to refinance below). While it’s no zero-percent interest rate, this approach to refinancing can still be extremely useful in reducing your credit card payment.

Credit scores and credit card refinancing

Have you ever received a flashy credit card offer in the mail? If so, it may have promised you low interest rates for a select number of months. Although, just because you’re the recipient of this offer, it doesn’t mean you’ll qualify.

To procure a zero-interest credit card, you’ll typically need a FICO score of 670 or higher.

If you don’t meet that score, you have two options. You can either try a different debt repayment method, or you can start to improve your credit score.

How to improve your credit score

Before we outline some of the best practices for improving your credit score,) let’s first define how a FICO score is calculated. The following categories are considered when calculating your credit score:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit (10%)

As such, the steps you can take to improve your credit score include:

  • Paying your bills on time. This seems simple, but when you commit to prioritizing paying bills over funding new purchases you’ll start seeing an increase in your credit score. Using the FICO scoring model, your payment history accounts for 35%—the highest rated factor—of your credit score. This means that the more consistently you pay your bills on time, the better your payment history will be and the better your credit score will be.
  • Submitting your recurring bill payments that aren’t automatically counted. Did you know that you can get rewarded for paying your utilities and cell phone bill on time? Experian, one of the three major credit reporting agencies, has a new feature that gives responsible borrowers the chance to add their consistent cell phone and utility payment histories to their credit file.
  • Keeping unused credit card accounts open. Credit utilization is the second most important factor when it comes to calculating your credit score. When you have accounts open that have a zero balance on them, your credit ratio will naturally be lower. This practice comes with a major caveat—don’t keep cards open that cost money in annual fees.

By employing these best practices, you could see an increase in your credit score in as quickly as 6 months to a year.

How does refinancing credit card debt affect credit score?

While refinancing a home or auto loan can trigger a hard inquiry on your credit report, typically balance transfers between cards will not negatively impact your credit score. That said, you may notice marginal changes. These can be due to:

  • Credit history – Credit history accounts for about 15% of your credit score. When you open a new credit account with a zero-percent introductory interest rate, this new account will be calculated in your average, decreasing the age of your credit. Again, this is not necessarily going to sink your credit score as this category carries less weight than payment history and amounts owed (credit utilization).
  • Credit utilization ratio – When you transfer the balance over from your current card to your new card, you’ll increase your credit limit, while keeping your credit used the same. This will decrease your credit utilization ratio and could positively affect your credit score.

Note: As mentioned above, if your current credit card has fees, it’s recommended that you close this card as soon as possible after transferring the balance.

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Is it a good idea to refinance credit card debt?

If you have a good credit score and you have debt you’d like to pay off faster at a lower interest rate, it may seem like there’s no downside to applying for a zero-interest credit card. However, there are a few things to keep in mind:

  • Read the fine print closely – Credit cards will often come with special cases, penalty fees, and other fees. You’ll want to be aware of these to ensure that you’re not paying more than you would with your current credit card.
  • The debt amount is still the same – Remember, just because you’ve refinanced your credit card doesn’t mean that the debt amount has changed. If you don’t manage to pay off the balance before the introductory period is over, you could find yourself in the same position.
  • Have a debt repayment plan – Identify how long you have until your introductory period ends. From there, break up your current balance into bite-sized chunks that you can pay off in that time. Build your monthly budget around this debt repayment and prioritize these payments before any other extraneous spending.
  • Earn extra income to pay down debt – Whether you can take on an extra shift at work or pick up a side hustle, having an additional income stream can ensure you eliminate your balance before the introductory period ends.

If you’ve read the terms and conditions of your new credit card, and you have a plan in place—refinancing your credit card can be an effective method for getting out of debt.

What is the best way to refinance credit card debt

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Because refinancing is such an effective debt management option, there is a robust market for zero-interest credit cards and personal loans that can help you reduce your debt. The best way to refinance credit card debt depends on your situation, what kind of debt you have, if you have multiple credit cards you are working with, and what terms you qualify for.

Zero- or low-interest credit card for refinancing

The biggest benefit of using a credit card to refinance debt is the introductory period. Should you qualify, this zero-interest period allows you to pay off your credit card debt without accruing a higher balance.

Additionally, while you’re in this period, any money you spend on this credit card will also come with no interest. If you have a solid debt repayment plan in place, having a low-interest credit card for debt refinancing can be a good option.

Personal loan for credit card refinancing

A credit card refinancing loan may not come with the benefit of a zero-percent interest rate, but this option can still be appealing for a couple of reasons.

For one, you can qualify for a personal loan with a low interest rate even with a lower credit score. While low-interest rate credit cards may require a credit score of 670 or above, personal loans have more flexibility. You may be able to refinance your credit card with a personal loan with a credit score of 580 or above.

Additionally, personal loans have fixed terms. While a credit card’s introductory period offers low interest rate, it’s likely to have high interest rates for any remaining balance after this time. With a personal loan, you know your interest rates will remain static—offering predictable payments every month.

How Tally can help you refinance your credit card

Paying off credit cards is a challenging but achievable goal for anyone, and refinancing your debt through balance transfers or personal loans are great ways to reduce the amount of money you owe to lenders.

With smart mobile app Tally, you can determine which of your credit cards carry the highest interest rates. Using Tally’s debt refinancing tools, you can start paying off your debts faster, helping you save money for your future.

The app features built-in capabilities like Tally Advisor, which is your go-to financial manager. Tally Advisor analyzes your spending habits and creates a customized plan to let you know where you should start prioritizing payments.

Ready to start diminishing your debt? Download the Tally app today.