How to Refinance Your Credit Card Debt

Refinancing credit card debt means paying off your current debt-load with another loan. Refinancing is different than debt negotiation. In debt negotiation or debt settlement, you work with your lenders to reduce the total principal you owe by offering a fast, lump-sum payment. Refinancing means you will still have monthly payments, but they will be to a different lender. The ultimate goal in refinancing is to secure a better debt situation than the one you are currently in. To gain those benefits, you must enter the process carefully.

Step 1: Take an Inventory of All of Your Debt
How much debt do you really have? Do you owe on a car, an appliance, a television or student loans? Take an inventory of all of your debt including all of your credit cards. Often, you will see the biggest results from refinancing if you additionally consolidate your debt. This means you use one loan to pay off all of your debt then work to repay that one loan.  You may have good interest rates on some of your debt, however. Create a statement that reflects which debt you wish to refinance and which you are already receiving a good deal on.

Step 2: Determine Your Ability to Pay
Budgeting is key to making any credit card debt refinance work in the long run. Use at least six months of bills to effectively budget all of your income and spending. Determine where you can make cuts in order to pay off the highest possible amount each month. Once you have this number, determine how long it will take you to pay off your existing debt if no interest were applied. Next, consider how long it will take you with a given range of interest rates. For example, use 6%, 10% and 12% interest over 3, 5 and 10 years. What would your monthly payments be? This will help show you what interest rate you should seek.

Step 3: Discuss Penalties With Your Current Lender
Paying off your current debt in one lump sum may come with penalties. These penalties should be expressed in your initial credit card contract. Speak with your current lender to determine if there are any fees or penalties that apply in your case. These fees will be part of your expense in refinancing your credit card debt.

Step 4: Find a Lender With a Better Alternative
Based on the budget you worked out in Step 2 and the fees you will pay from Step 3, look for an appropriate lender. You may want to start with online lenders because they provide fast quotes without requiring a burdensome process on your end. Approach banks and dedicated lenders to actively seek the best possible rates. No matter where you find your lender, you should protect yourself by scheduling a personal meeting either face to face or over the phone to ask thorough questions. You should additionally check rating's agencies and reviews of that lender. Just because a lender offers low rates does not mean you want to do business with them.

Step 5: Consider All of the Factors
Remember: your interest rate is not the only factor in securing a good loan. You want to make sure there are not excessive fees and penalties for late payments or paying off the debt early. Working with a lender you trust is also an invaluable asset. Creating a level of comfort and understanding will save you stress in the future. It may help to create a wish list which includes everything you want. Use this list to compare lenders and see who offers you the best all-around deal.

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