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Refinancing your credit card debt
Credit Cards

Refinance Your Credit Card Debt

The estimated reading time for this post is 127 seconds

Refinancing your credit card debt is the best way to take advantage of this era of cheap money.  The average interest rate on the 30-year fixed mortgage, new car loan, and used car loan is about 3.64, 4.62, and 5.32 percent, respectively.

At the same time, the average annual percentage rate (APR) on credit cards is at 17.8 percent.  If your credit score is less than stellar, your APR can range between 24.99 and 29.99 percent.

The moment the 30-year fixed mortgage drops between half and three-quarters of one percentage point, thousands of people rush to refinance their home.  However, they continue to service high-interest rate credit card debt.

Refinancing your credit card debt, also known as balance transfer credit card is an option consumer with excellent credit scores need to explore, at least every two years.  Refinancing your credit card debt is different from debt consolidation loans.  If your credit score is excellent, you shouldn’t think about debt consolidation loans; that’s a topic for another article.

How Does Credit Card Debt Refinancing Work

There is a saying on Wall Street that, “credit card is the only good business left in finance.”  seeing the average interest rate lenders charge on a mortgage and car loan, you have to agree with Wall Street.  

Lending someone money for 30 years at 3.64 percent interest rate is nowhere near as profitable as lending at 17.8 percent compounding daily.  If you have $10,000 in credit debt with a 17.80 APR, you are paying $1,780 each year on interest or $148.33 (($10,000×0.1780)/12) per month.

Your path to self-debt relief is to apply for an excellent balance transfer credit card and transfer your outstanding balance to that card.  For example, the Citi Simplicity credit card gives you 0 percent APR for 21 months on balance transfers. So, if you transfer your $10,000 outstanding balance, you will get nearly two years to pay your balance off with no interest.

The Citi Simplicity credit card does have a balance transfer fee of 5 percent, meaning that your outstanding balance will be $10,500 ($10,000*1.05) after the balance transfer.  The five-hundred dollars is equivalent to mortgage refinancing costs.

You can save about $3,060 (($1,780*2)-500) by refinancing your credit card debt.  You can continue this process until your outstanding balance pays off in full.  Many credit card issuers don’t even charge the balance transfer fee.

Credit card issuers have access to cheap money, and they are willing to provide excellent up-front incentives such as zero-fee balance transfers and cashback to acquire new clients.  You can beat the credit card companies at their own game by strategically managing your credit card debt.

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