When someone is stuck with high credit card debt they are kind of trapped in a catch 20-20 situation. They are paying extremely high interest on the debt but at the same time, they can’t get approved for any better loan terms as their credit is shot by those very same high credit card balances which are affecting their credit utilization.
In the past, we posted about refinancing your home to pay up your credit card debt. That can work great for someone who owns a home. But what if you don’t own a home? This time, lets discuss refinancing credit card debt through a credit card refinance loan.
What Is A Credit Card Refinance Loan?
There are unconventional lenders who offer personal loans for consumers with high credit card debt. The loan is to be used to pay up your credit card debt. These loans can be a great tool to get rid of your credit card debt as explained later in the post.
Please note: Do not confuse these personal loans with a debt settlement offer, or the junk mail you receive from companies asking you for a lump sum payment and offer to pay your balance’s pennies to the dollar. Or companies which offer to work out a payment plan for you with the credit card issuers. These companies are not lenders. They are simple debt settlers which operate on a bunch of lies and at the end of the day, you are left with damaged credit and not the best debt settlement deal. Ignore the junk mail!
How Can A Credit Card Refinance Loan Help?
A credit card refinance loan will help you in several ways.
- Lower your interest rate
- Combine your balances for easier payment
- Last but not least – increase your credit score
Lower your interest rate:
Some people reported getting rates as low as 7.99% APR which is much lower than the average credit card interest rate. But the average approved rate was closer to 20% APR which is not necessarily lower than the average credit card interest rate.
Combine your balances for easier payment:
I personally don’t see much of a benefit to this one but I can sure understand that some people would prefer to make one lump payment instead of keeping track of 10 or more different credit card bills.
Last but not least – increase your credit score:
High credit utilization is a factor that can have a very significant effect on your credit score, but credit utilization only affects credit when its on revolving loans, not on installment loans. Credit cards are revolving loans but credit card refinance loans are installment loans. Therefore once you transfer the debt to a credit card refinance loan the credit card debt will no longer affect your credit score as much, causing your credit score to skyrocket up and up!
I wrote “last but not least” on this one because, in my opinion, this is the most important benefit. Why is this so significant? Because let’s not forget that a big part of your debt problem was being trapped with a low credit score. That locked you out of getting better loans with better interest rates. Once you’ve liberated yourself and crossed the road to better credit, the doors will open for you to be able to obtain a better personal loan with an even lower interest rate. Even better, now that you have a good credit score you can get approved for 0% APR credit card for as much as 20 months! That will allow you to tackle the debt for up to 20 months interest-free!
What Do You Need To Get Approved?
You can get approved for a credit card refinance loan even with a credit score in the low six hundred, or even as low as 580. But keep in mind that lenders will not approve you if you have any recent delinquent payments on your credit report.
In most cases, you will need to be able to prove income for a 50% debt to income ratio. Proof of income can be a pay stub or even log in to a bank account where the money is deposited. (Some applicants reported they were not asked for any proof of income from Lending Club).
How To Go Shopping
There are many lenders out there who offer credit card refinance loans, even if you get declined by one you may still be able to get approved by the next one. Most lenders offer to check for a pre-approval with just a soft credit pull.
Before applying for a loan always check out the fees. An origination fee is standard but beware of early payoff fees or high late fees.
Here is a list of some lenders to check out
SoFi offers loans ranging from $5,000 to $100,000 with rates ranging from 5.99% – 16.19% APR (with AutoPay). There is no origination fees. You can check if you are approved without hurting your credit score. They require a minimum of 680 credit score.
Payoff offers loans ranging from $5,000 to $40,000 with rates ranging from 5.99% – 22.59% APR. The origination fees range between 0% and 5%. You can check if you are approved without hurting your credit score. They require a minimum 640 credit score. Payoff will require proof of income.
Lending Club offers loans ranging from $1,000 to $40,000 with rates ranging from 10.68% – 35.89% APR. The origination fees range between 1% and 6%. You can check if you are approved without hurting your credit score. They require a minimum of 600 credit score. Some report Lending Club not requiring proof of income.
Upstart offers loans ranging from $1,000 to $50,000 with rates ranging from 7% – 35.99% APR. The origination fees range between 0% and 8%. You can check if you are approved without hurting your credit score. They require a minimum of 600 credit score.
BestEgg offers loans ranging from $2,000 to $35,000 with rates ranging from 5.99% – 29.99% APR. The origination fees range between 0.99% and 5.99%. You can check if you are approved without hurting your credit score. They require a minimum of 640 credit score.
Tally is a debt pay-off app that helps you get out of credit card debt fast, and they will also lend you money to make the payments. Some reported to me being successful on getting a loan from Tally even when other leaders denied
You can also check out Credit Karma or Nerd Wallet. They will do the shopping for you by checking many lenders and bring back to you all the approved offers so you can compare them at once.
What To Do After You’re Approved?
Voila! Once you are approved and complete the payoff you should see your credit score shoot up by many points. At that point, you can go ahead and apply for credit cards that offer 0% APR on balance transfers (check out a full list here). Because of your now better credit score, you will have a better chance of getting approved for a 0% APR credit card. Once you are approved for a 0% APR credit card you can now go and transfer the credit card refinance loan back to your 0% APR credit card. This will be a dream come true! You finally took your entire credit card balance and transferred it over to 0% APR for up to 20 months! Finally, you now have a fair chance in tackling your credit card debt interest-free!
Before writing this post we interviewed a few people who have already gone through this process. They all said the same about the feeling of extreme satisfaction on finally getting rid of their credit card debt. One person (asked not to be named) told me that thinking back he can very confidently say this was the smartest move he ever did in his life and would recommend a credit card refinance for anyone that is in credit card debt. If you are in credit card debt then it doesn’t hurt to try. Give it a shot and see if you can get approved for a credit card refinance loan.
Do the above lending companies charge the full interest rate even if paying it off early?
Heard so, and curious if this is true..
Some companies charge an early termination fee. The companies I listed at the time I listed them I checked and they don’t charge an early termination fee
Regarding the benefit of combining all debt in one loan.
I dont know about how much the average payment for every month can be on a loan, but if someone has balances on alot of credit cards then his minimum monthly payments not to have a late paypent can equal alot of money…which means much easier to fall behind in late payments and serious delinquencies.