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The Basics To Understanding Consolidating and Refinancing Credit Cards

The average American consumer credit card debt began declining between 2019 and 2020 across all the states. Restrictions during the COVID-19 pandemic decreased consumer spending. And federal relief payments and unemployment extensions helped Americans pay down their credit debt. The pandemic also affected credit card delinquencies, which fell over 50%, according to Experian.

Consumers who pay their statement balances every month in full avoid interest charges. They also find these full monthly payments increase and maintain higher credit scores. Unfortunately, most cardholders carry active balances from month to month.

Despite Federal assistance and decreased spending, many Americans found themselves out of work due to the pandemic. As a result, almost half the country carries some credit card debt, owing over $800 billion with over 500 million credit card accounts. The average debt is around $6,000. With increasing interest rates, consumers may want to consider consolidating or refinancing their credit card debt.

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Credit card debt consolidation takes the balances from multiple cards and moves them into one lower-interest loan.  This consolidation carries both possible opportunities and potential obstacles.  The lender usually expects the consumer to pay off the personal loan in less than five years. This fixed repayment schedule can quickly pay down the debt. Personal loan interest rates and fees will most likely be lower—even with less-than-perfect credit—than credit cards are offering. And this encompassing personal loan means the consumer has a single monthly payment at an established interest rate rather than multiple due dates at different rates.

However, lender approval typically requires better-than-average credit scores. But, there are higher-interest loans available for those who have lower credit scores. The application process digs deeper into the borrower’s financials because the loans are unsecured.  And with a fixed rate, the interest rate doesn’t change throughout the life of the loan.


Refinancing credit card debt involves transferring an outstanding balance to a different credit card. This transfer aims to move the debt to a card with a lower interest rate. Cards with promotional periods of 0% will give refinancers a grace period to pay down or pay off their debt before the rates increase.  The application for a low-interest card is dependent on good credit. Still, it’s a faster and less involved process than debt consolidation. In 2021, the average Annual Percentage Rate (APR) was just over 18% after the introductory grace period.

Disadvantages with this method are that the introductory percentage ends, and the rate is variable. Refinancers should read all the fine print to avoid paying a much higher APR if some debt is still outstanding when the initial period ends. This higher APR could exceed the credit card’s rate.

Photo: Shvets

Which Is Better?

The ability to lower interest costs is inherent in both options. It is essential to read all the fine print and calculate which method will yield the best outcome financially.

Refinancing is usually the better option for lowering the interest due on the debt. The introductory 0% interest rate can save a significant amount of money with careful attention to detail, allowing more money toward the balance due. Even switching to a lower APR can represent savings. Just watch for hidden fees that could wipe out the effort.

If the introductory refinancing period is not enough time to pay off the debt, consolidation is the better option. The fixed-term loan can see the borrower free from the debt in only five years.