A young man holding a credit card in one hand stares contentedly at the phone in his other hand.

What is Credit Card Refinancing?

Published July 3, 2023
4 min read

Key points about: credit card refinancing

  1. Credit card refinancing may help you pay your debt by transferring your balance to a lower-interest credit card during an introductory period.

  2. Refinancing multiple cards with outstanding balances may result in a lower monthly payment.

  3. Consider factors like balance transfer fees, the limited offer period, and the standard APR before making a decision on credit card refinancing.

Credit card debt is stressful enough to frustrate the many Americans who are burdened with it, but when you add high interest rates, it’s likely to make you feel like you’re drowning in it. Credit card refinancing offers a way to shift high-interest credit card debt to a new credit card with a potentially lower interest rate. If you have a pending balance on one or more credit cards with a high interest rate, you can transfer the debt to a different credit card with a low-interest balance transfer option, if available. A balance transfer may help ease the stress of accumulating interest and give you a chance to focus on repaying the existing balance. Refinancing means applying to a new lender for a new credit card, after which the lender will conduct a hard credit inquiry to review your credit history. 

When should you consider credit card refinancing?

A pending balance on a credit card may be costing you heavily in interest. For a card balance of $2,000 with an APR of 20%, paying your balance off over a year will cost $185 in interest. You can calculate the amount of interest you’ll owe for any balance and payoff period using our credit card interest calculator. Unpaid credit card debt also increases your credit utilization ratio, which is the percentage of your available credit that you currently use. To calculate your credit utilization ratio, add all of your outstanding credit balances, and divide that number by your total credit limit for all your accounts. Credit utilization is one of the factors that credit reporting agencies use to calculate your credit score, and a higher rate is likely to negatively impact your credit score. Since experts recommend maintaining a credit utilization of 30% or less for a good credit score, reducing your outstanding balance is important to raise your credit score and build a good credit profile.

Choosing the right balance transfer card is crucial to effectively pay off an outstanding balance. Generally, you’ll have to pay a balance transfer fee of 3% to 5%, so ensure that the fee is affordable for you. You may also want to seek out a card with no annual fee where possible. Discover has no annual fees on all of our cards. Since your goal is to pay off your entire balance during this offer period, looking for cards with a longer period will give you more time to do so. Read the terms and conditions closely to understand if the promotional APR applies to new purchases on the balance transfer card and determine whether the standard APR that applies at the end of the promotional rate period is reasonable for you. You may also want to consider any rewards programs that the card offers and see what type of card best matches your lifestyle.

Another important thing to contemplate when considering credit card refinancing is how much interest you’ll be paying on the new card. Credit cards with low intro APR offers allow cardmembers to enjoy low-interest balance transfers and purchases.

How to refinance your credit card debt

To effectively refinance your credit card debt, start by seeking out balance transfer cards with a low interest rate or 0% intro APR period. Remember that you're also looking for low fees and a reasonable standard APR in addition to a longer low-APR offer period. Once you've found the right card for yourself, you’ll need to apply for the card and get approved. After being approved, you can make your balance transfer request, which you may have the option to do online or over the phone. With Discover, if you would like to request a balance transfer after your application is approved, you'll need to wait 14 days after setting up your account, after which you can request your balance transfer.

Did you know?

To request a balance transfer online, log in to your Discover account and select “Card Services,” followed by “Balance Transfers.” You should be able to see the balance transfer offers available to you, select the offer, and provide the necessary transfer details. Alternatively, you can call the phone number on the back of your card to check your available offers and initiate a balance transfer request. Most transfers take about four days to process, so bear in mind that it may take time for the balance to transfer from your old card to the new one. Once you’ve transferred your balance successfully, it’s time to tackle the debt. In order to avoid paying the standard interest rate, you’ll need to pay off the balance before the introductory period expires.

What are the pros and cons of credit card refinancing?

While credit card refinancing through balance transfers can be effective for many people, this strategy has pros and cons.

Pros: Refinancing allows you to concentrate on paying off your balance by reducing interest for a fixed period. Saving on interest enables you to pay down your credit card balance faster. Refinancing two or more credit cards may also give you fewer monthly payments, reducing the stress of juggling multiple payments.The process of applying for a new credit card, getting approved, and transferring your balance is comparatively quick and easy.

Cons: The intro APR only lasts for a fixed period, so you’ll need to repay the outstanding debt within the promotional period or risk incurring further interest. The balance transfer fee can also be a deterrent if your debt is high. You’ll also have to look closely at the terms and conditions of your card since promotional APRs don't always apply to purchases. If your card doesn’t have an intro purchase APR, the intro APR is not valid when you make purchases.

What are the alternatives to credit card refinancing?

The main alternative to credit card refinancing is credit card debt consolidation, which involves paying off outstanding credit card balances with a loan, either a home equity loan or a personal loan. Debt consolidation may streamline your repayment process and offer better interest rates, but personal loans may also come with additional costs such as processing fees. Unlike refinancing, it is not certain that you’ll pay lower interest, but you will likely have a longer repayment term. The terms of a personal loan vary depending on your credit history and financial situation. Refinancing high interest debt with a balance transfer credit card can be an effective way to pay off your credit card debt at lower interest rates. Knowing that the intro APR period is fixed can be great motivation to get serious about your debt repayment strategy and pay down your debt faster.

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