How to Refinance Credit Card Debt

To refinance means to take out a new loan, usually with favorable terms, to cover an existing loan. To refinance credit card debt, you take out a single loan to pay off all of your credit cards. One way to refinance credit card debt is to take out a second mortgage or home-equity loan. Another way is to transfer several credit card balances onto another card with a high limit and low annual-percentage rate (APR).

Instructions

Difficulty: Moderate

Things You’ll Need:

• Lender
• Credit card with high maximum balance and low APR

Refinance by Getting a Home Equity Loan

1. Talk to several lenders to get the best deal possible. Make sure there is no penalty for early repayment of the loan.
2. Borrow only enough to pay off your credit cards. It can be tempting to borrow up to the full value of your home, but this will just leave you with another large debt to pay off. Take care of the credit card problem first, and then consider taking out another loan for other purposes.
3. Cancel or lock up the credit cards once they are paid off. You don't want to charge up the credit cards again, stretching your budget to pay off credit cards and a new home equity loan.
4. Repay the second mortgage or home equity loan as quickly as possible.

Refinance by Transferring Balances to Another Credit Card

5. Find the right credit card, one with a high limit and low APR. Some cards offer a break on interest for balance transfers. You may be able to negotiate with one of your existing credit cards to get your limit raised and your APR lowered.
6. Transfer all outstanding balances to the designated card.
7. Do not make new charges to the card to which the balances have been transferred.
8. Lock up or cancel your other credit cards. Do not charge additional items to them.
9. Pay off the balance of the remaining card as quickly as possible. Try to pay at least 5 or 6 percent of the balance every month. Pay well above the minimum payment.

Tips & Warnings

• A home equity loan means that you are putting your house up as collateral on the debt. If you don't repay your home equity loan, you could lose your house.
• Once you have refinanced your credit cards and gotten out of debt, keep one credit card on hand for emergencies and lock up or cancel the rest of them. You don't want to get yourself right back in trouble.