Dec 11, 2023

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Woman and man review multiple credit card bills.

Which is better for your debt situation, credit card refinancing or debt consolidation?

The answer: It depends. Before you decide, it’s important to understand what each option means.

Let’s start with the basic differences. Put simply, debt consolidation is when you combine multiple debts into one lower-interest loan. That leaves you with one set regular monthly payment and a fixed repayment term, instead of several different payments to juggle over an undetermined length of time.

Refinancing typically means negotiating new terms for existing debt, whether that means a lower interest rate or a different payment schedule. Transferring a credit card balance to another card with a 0% introductory Annual Percentage Rate (APR) is one way to refinance credit card debt.

If you have lots of high-interest or variable-rate debt, especially if it’s made up of balances on multiple credit cards, a debt consolidation loan could allow you to pay off your debt faster. It could also reduce the amount you pay in interest. But if your debt burden is smaller, it might make sense to refinance instead.

Read on to learn which option is right for you.

Table of contents

What is debt consolidation?

Debt consolidation is a financial strategy that allows you to combine multiple debts into one.

When you have multiple debts in the form of credit cards, store cards, a car loan, medical bills, and/or personal loans, you receive several bills each month, often at different times. And your terms and rates likely vary by creditor.

Depending on the type of debt you carry, interest rates could differ (or change entirely if you have an introductory APR), payoff dates could be years or just months away, and paying a debt off early could result in penalties. Each of these variables can make it difficult to plan your payments and manage your finances.

Debt consolidation simplifies how you pay your bills and can help you gain better control of your financial situation.

What are the benefits of debt consolidation?

When you receive a debt consolidation loan from a reputable lender, you can use those funds to pay your creditors directly.

Then, instead of managing multiple debt payments each month, you’ll pay just one lender for a set term until the loan is paid in full.

Not only does this strategy make paying off multiple debts easier, it could also offer the benefits of flexible repayment terms and lower interest rates than other forms of debt.

Even small interest rate increases can cost you more money on variable rate debt. By consolidating higher-debt into a fixed interest personal loan, you could potentially save hundreds, even thousands, of dollars in interest.

Curious about how much you could save? Discover® Personal Loans offers a free debt consolidation calculator to help you estimate interest savings.

What is credit card refinancing?

Credit card refinancing is a financial strategy specific to getting a better rate. Maybe you still carry (and are loyal to) your first card, and the rate was higher because you were still establishing a credit history. Or maybe you are carrying a higher balance than usual, and the interest rate is causing your minimum payments to increase.

A balance transfer is one way to refinance credit card debt: You apply for credit with better terms and a new lender and move existing credit card debt to the new card. Or you may be able to get a lower balance transfer offer from one of your existing credit card lenders. 

Who should consider credit card refinancing?

If you have a balance on a credit card that’s costing you a lot in interest, you might consider transferring the balance to a card with a lower or even 0% introductory APR, which often lasts for 6-18 months.

This strategy could be especially helpful if you believe you’ll be able to pay off the balance completely in that introductory period. For example, a borrower with a $10,000 balance on a card that charges 20% interest could save $2,000 in the first year alone if they switch to a 0% card and make no additional purchases.

But there are drawbacks to refinancing credit card debt this way.

First, most lenders charge a balance transfer fee of 3% to 5% ($300 to $500 in the example above). Second, introductory periods don’t last forever, and if you’re not able to pay off the balance before the end of that period, you’ll be subject to the card’s standard interest rate. As of October 2023, the average credit card interest rate was around 21%.1

So, if you have credit card debt that you think you won’t be able to pay off within an introductory rate period, even with a break on interest, it might make more sense to consider a personal loan instead of a balance transfer. 

You can apply for a Discover personal loan of any amount between $2,500 and $40,000. With a fixed interest rate and a set regular monthly payment for the life of the loan, you’ll know exactly when you’ll have this debt paid off.

The bottom line

Both debt consolidation and credit card refinancing can be effective strategies for managing your debt. Your personal financial situation should drive your decision.

If you have a smaller amount of credit card debt to manage, it may make sense to consider a balance transfer to a 0% APR credit card. But if you have multiple high-interest or variable-rate debts, combining those bills into one personal loan may simplify your life and help you pay off debt faster.

Pay off up to $40,000 with a Discover® personal loan.

Learn More About Debt Consolidation

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