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).

Refinance by Getting a Home Equity Loan
Talk to several lenders to get the best deal possible. Make sure there is no penalty for early repayment of the loan.

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.

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.

Repay the second mortgage or home equity loan as quickly as possible.

Refinance by Transferring Balances to Another Credit Card
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.

Transfer all outstanding balances to the designated card.

Do not make new charges to the card to which the balances have been transferred.

Lock up or cancel your other credit cards. Do not charge additional items to them.

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.

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How to Pay Off Debts Fast

Paying off debt fast involves self-sacrifice, careful calculation of your budget and your financial obligations, and a cash flow that allows you to meet other life obligations.


Organize Your Debts


Highest Interest First
According to ABC News consumer correspondent Elisabeth Leamy, take stock of what you owe and prioritize your debt based on what carries the highest interest rate. For example, if you have a $2,000 loan at 14.5 percent interest and a $2,000 credit card balance at 18.9 percent, Leamy suggests it makes more financial sense to pay off the credit card first.


Snowball Effect
Financial expert Dave Ramsey recommends a slightly different approach using the "snowball effect." This involves paying off debts from the smallest to the largest. His rationale is that seeing debt start to disappear gives you a boost of confidence and will encourage you to stick to your debt reduction plan.


Consider whether any of your debts have extenuating circumstances that move it to the head of the pay-off line. For example, if you have a credit card debt with an interest rate that's about to go up, or a line of credit you’ve exceeded so you’re being charged penalties, these debts should take priority.
Pick Your Targets

Put all your available debt-payoff cash toward the first bill you've selected. You’ll still be making minimum payments on other debt as part of your budget “necessities,” but your top target should get the most attention. After that debt is paid in full, move to the next target on your list. Your payoff pace will pick up as you go through the list. After you pay off Debt A, you’ll put your debt reduction financial resources toward Debt B, along with the amount you were already paying toward that bill. As you continue applying earmarked payments from eliminated debts to existing ones, your overall debt load will rapidly start to shrink.

Tighten Your Budget


Go through your household budget line by line and look for ways to slash expenses to the bare minimum. Eliminate all but absolutely essential expenditures. For example, postpone vacations, cancel memberships and subscriptions, eliminate dining out and entertainment, and don’t buy anything you don’t need. When you're working with a lean budget and after you have a clear picture of what you owe, compare your debt to your income. For example, if you’ve slashed your budget to $2,500 per month and you earn $4,000 per month, $1,500 should be allocated to debt reduction.

Tip

Set aside money for an emergency fund, but otherwise keep funneling cash overage toward your debt pay-down.
If you aren’t sure where your money is going, start tracking your spending to get a better idea of your financial habits.


Sell Stuff

Look around your home for items of value you don’t use, want or need, and sell them. This might include antiques, household items, collections, equipment or machinery. If you have enough stuff, employ an auction company or estate sale provider to conduct a sale. Otherwise hold a garage sale, haul your stuff to a swap meet or use an online auction site. Put everything you earn into your debt fund.


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