Debt Consolidation vs Credit Card Refinance – Which is Better?

Both debt consolidation and credit card refinancing can help you pay off debt and get a lower interest rate.

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If you are drowning in debt, you may be considering turning to debt consolidation or credit card refinancing for relief. Although both options are designed to help you clear your debt, one may be better than the other depending on your financial circumstances.

Key Takeaways

  • Debt consolidation involves streamlining all your debts into one new loan, while credit card refinancing involves transferring existing credit card balances into a new card.
  • Both debt consolidation and credit card refinancing help you achieve the same financial goal but take different approaches.

Understanding Debt Consolidation

If you have multiple types of debt, such as credit card debt, auto loan, medical bills, and personal loans, you’ll receive a separate bill for each loan, often at different times of the month. Your loan terms and interest rates may also vary by lender, making it difficult to track all your balances.

Debt consolidation allows you to combine all these different debts into a single loan, simplifying your bills and helping you gain more control over your finances. With debt consolidation, you would take out a new loan, ideally at a low interest rate, and use that money to pay off all your existing debts. You will then make monthly payments on this new loan over a predetermined period, streamlining your debt repayment process.


  • If you have good credit and qualify for a lower rate, this process can potentially save you hundreds or even thousands of dollars in interest.
  • If you are having trouble managing your monthly debt payments, debt consolidation can help extend your repayment term, allowing you to make lower payments each month.
  • With debt consolidation, you only need to pay off one loan instead of multiple balances.
  • If you qualify for an unsecured personal loan, you do not need to provide any collateral. Personal loans may also come with lower or zero interest and more favorable repayment terms.


  • If you have poor credit, you may not qualify for the best rates. Typically, lenders prefer to give the best terms and rates to those with excellent credit.
  • Depending on the type of loan you use to consolidate your debt, you may get charged various fees. These fees can add up, offsetting some or all of the savings from debt consolidation.
  • If you use a home equity loan or a home equity line of credit (HELOC) to consolidate debt, you risk losing your home to foreclosure if you default on your loan. With a home equity loan or HELOC, you are putting up your home as collateral in exchange for money from the lender.
  • If you extend your repayment period, you could end up paying more in interest over time, even though your monthly payments are lower.

Understanding Credit Card Refinancing

Most credit cards have fairly high APRs (annual percentage rates), sometimes upwards of 30%. However, certain credit cards in the market come with 0% APR during their promotional period, which is effectively a no-interest loan.

If you are dealing with high-interest credit card debt, credit card refinancing allows you to temporarily reduce your interest charges to zero. This process involves applying for a credit card that offers a zero-interest balance transfer option and a high credit limit. You can transfer existing debt from credit cards to the new card and will not need to pay any interest on the balance during the intro period, which usually lasts 12-18 months. Afterward, the interest rate will return to its standard rate.


  • Depending on your credit, you may qualify for a lower interest rate, saving you money on interest charges and speeding up your repayment process.
  • During the promotional period, you won’t have to owe any interest. This makes it easier to repay your debt and potentially even eliminate it.
  • You’ll get more time to pay off your balance, as interest charges usually start accruing at the end of each billing cycle. That can also reduce the strain on your budget.


  • If you have bad credit, you may not qualify for a 0% APR credit card. Lenders prefer borrowers with a history of repaying their debt on time and in full.
  • Some lenders may charge you a balance transfer fee of 3-5% of the balance. If you can’t pay off your debt within the introductory period, this fee may end up costing you more money you don’t have.
  • Credit card refinancing doesn’t reduce existing debt. You are still responsible for paying off your original debt.

What is the Difference Between Debt Consolidation and Credit Card Refinancing?

Debt consolidation and credit card refinancing both have the same goal of reducing the amount of debt owed, but take different approaches to get there. Debt consolidation involves taking out a new loan and using that to pay off all your existing balances. The new loan can be a personal loan, home equity line of credit, home equity loan etc. Meanwhile, credit card refinancing involves transferring your credit card balances to a new card with a 0% intro APR. 

Should You Consolidate Credit Card Debt or Refinance?

It is important to consider timing and your financial situation when deciding whether to consolidate or refinance your loans. Keep in mind that if you have a poor credit score, lenders may not be as willing to offer you a new loan with a lower interest rate than your current loans. Additionally, if you are unable to pay off the refinanced credit card balance before the introductory period ends, it may be more beneficial for you to consolidate your debt instead.

Choose Credit Card Refinancing If:

Credit card refinancing is best for people with good credit, ideally a credit score of 680 or above. That way, you’ll qualify for a much more competitive interest rate than your current cards. Additionally, you should get a credit card with a high enough credit limit to transfer all your existing high-interest card balances to the new card.

If you can pay off all your debt in the 12-18 month promotional period, you can save on the interest charges and potentially minimize your monthly balance. But keep in mind that most lenders charge a 3-5% balance transfer fee, and standard rates apply once the intro period ends. If you don’t think you can pay off the credit card balance within 18 months, even without additional interest charges, it may make more sense to apply for a personal loan.

Choose Debt Consolidation If:

If your credit card debt is too high and you can’t afford to pay it off before the introductory 0% offer ends, debt consolidation may be a better option. If you have a house with equity, a home equity loan or home equity line of credit may allow you to qualify for low-interest rates while giving you more time to pay off your loan. A personal loan may also be a more realistic alternative, as you can have several years to repay your debt.
However, like with credit card refinancing, you’ll need a high credit score to qualify for the best terms. Certain types of loans may also expose you to greater risk. For instance, if you apply for a home equity loan, your house is at risk of foreclosure if you can’t make your mortgage payments.

Consider a Credit Counselor

A credit counselor from a nonprofit credit counseling agency can help you get out of debt and learn how to manage your money better. Typically, they will conduct a thorough financial assessment, including reviewing your income, expenses, and outstanding debts. Once they have a strong understanding of your financial situation, they will help you create a realistic budget and identify areas where you can cut costs.

The counselor may suggest using a debt management plan, which involves combining your various balances into one payment. Usually, they can help you secure better terms with lenders and provide a plan to pay down your balances within 3-5 years.

Note that these counselors may charge a monthly service fee, and the plan will get reported to the credit-rating agencies. You may also need to close some of your credit cards as part of the debt management plan, which could potentially lower your credit score for the first few months. However, once you make on-time payments consistently, your score should eventually go back up.

Review Your Credit

As a general rule of thumb, you should review your credit reports from each of the three main credit bureaus (Experian, TransUnion, and Equifax) at least once a year. You can request free reports at

Pay attention to hard inquiries pulled, open accounts, and other important details about your credit. If you see anything you do not recognize, dispute it immediately with the corresponding credit bureau since that can impact your credit.

The Bottom Line

Debt consolidation and credit card refinancing are effective ways to manage your debt. Before deciding which strategy to use, consider your financial situation, as one option may be better than the other for you.

We are not financial advisors. The content on this website and our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!

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