It can be difficult for those mired in credit card debt to see a way out. Making monthly minimum payments hardly makes a dent in the debt balance, and this is often compounded by additional credit card spending which accrues further interest. However making a decision to take charge and tackle the debt can reap benefits, as debts which could have taken many years to clear through minimum payments can be reduced in much speedier ways. One of the best ways to tackle the problem is to refinance the debt.
By far the most sensible route to follow to refinance credit card debt is to ensure it remains as an unsecured debt. Low or zero interest balance transfer cards offer the most expedient way to aggressively pay down credit card debt, providing one can also rein in current credit card spending.
Typical fees to initiate a balance transfer are 4%, which equates to an excellent deal for anyone coping with credit card interest rates in double digits.
Transferring current credit card debt to a low or zero interest card and using the card only as a means to pay down debt, can significantly reduce the amount of interest repaid. This allows the debt to be cleared down much faster. The benefits are clear, as instead of looking at an interminable period of debt repayments one can begin to see the debt reduce by putting all available disposable income towards clearing it.
One often used but inadvisable route, is to borrow against home equity. This method has three distinct disadvantages. If the debtor has not made an absolute commitment to cease spending on credit then using a home equity loan, or other form of consolidation loan, simply transfers the problem into meeting monthly loan payments whilst allowing for over spending to continue on credit cards.
According to Money Central, Doug Duncan of the Mortgage Bankers Association of America “believes people with big credit-card debts need to learn to live within their means before they even consider tapping their home equity.”
Loans also convert unsecured credit card debt into secured debt, which puts the collateral at risk. At the same time home equity is reduced, meaning the home owner is more at risk of negative equity. In many cases those who resort to home equity loans to clear down credit card debt end up defaulting on the loan.
Likewise one should avoid the lure of debt consolidation companies offering loans, as it works out more expensive than tackling the debt through balance transfer cards. Those who are unable to acquire a low interest balance transfer card should consider refinancing their credit card to the one they currently hold that offers the lowest interest rate, always after negotiating a reduction in the current rate.
The relief of being clear of credit card debt can be immense. What appears as an intolerable burden can be lightened by opting to refinance the debt, as it allows a window of opportunity to pay back the debt with less interest which thus offers an incentive to clear it quickly. However it pays to stick to the most sensible method of doing so by using credit cards to clear credit cards, rather than exposing oneself to the inherent dangers associated with home equity loans and debt consolidation companies.