Refinancing Debt: Everything You Need to Know

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Last updated on August 24th, 2023

The COVID-19 pandemic has many Americans considering debt refinancing. Is now a good time to do it? Does refinancing impact your credit score? How do the different types of debt obligations differ when it comes to reducing payments? Here’s everything you need to know about debt refinancing.

Does Refinancing Debt Hurt Your Credit Score?

Refinancing debt won’t hurt your credit score, generally speaking. That said, refinancing will have a short-term negative impact on your credit score because of two factors:

  • A new inquiry on your credit report from opening a new line of credit (otherwise known as a hard inquiry)
  • A new account, which lowers the average age of your credit history

These two factors have a small impact on your overall credit score. Hard inquiries account for 10% of your FICO Score, and the average credit age is worth about 15%. New inquiries stay on your credit report for 24 months, but the effects of these hard inquiries dissipate in a matter of months. Basically, in the long term, the benefits of refinancing often offset any immediate credit score decline.

Is Refinancing a Good Idea?

So, is refinancing a good idea? That depends. If you are struggling to meet your debt obligations, refinancing is a great way to get your finances in order. This is especially true with credit cards, where there are no loan origination fees, closing costs, etc.

Refinancing Credit Card Debt

Credit card refinancing is a straightforward process. This approach usually involves using a balance transfer credit card. Balance transfer cards allow consumers to repay their debt at a faster pace than usual – often thanks to 0% introductory APR periods.

Debt consolidation credit cards are another popular method for refinancing credit card debt. The most popular example of a refinance credit card is the Upgrade Card. The Upgrade Card is a hybrid of a credit card and personal loan, offering access to a large line of credit and flexible repayment options.

How to Refinance Credit Card Debt

The easiest way to refinance credit card debt is through a balance transfer. But how does one make a balance transfer? The process is straightforward:

  • Select and apply for a balance transfer card. Put what you’ve learned about your financial needs and goals into your research to find a card with the right APRs, intro offer, and credit limit.
  • Request the balance transfer. Contact the issuer of the new credit card to start the transfer of each balance.
  • Keep up with your payments. The best way to make a balance transfer credit card worthwhile is to make consistent payments.

Most balance transfer cards require you to enter the information for the transfer on the application. Always be sure to read the fine print beforehand and make sure you can transfer all – or most – of your outstanding debt.

Related Article: How Does the Credit Card Balance Transfer Process Work?

Debt consolidation credit cards – like the Upgrade Card – have a different process. Cards like these work by extending a line of credit, like a personal loan. Upgrade Card, for example, offers opening lines of credit of up to $20,000.

Using hybrid credit cards to refinance debt requires transferring the card’s balance into an associated bank account and using those funds to pay off existing credit card balances.

Users than repay the balance over a set term, which ranges between 12 and 60 months for the Upgrade Card specifically. According to research from Upgrade, paying off a $10,000 balance takes just a few years with the Upgrade Visa, compared with other traditional credit cards that can take up to 20 years – or more.

Why Consider Reducing Your Credit Card Debt Now?

The coronavirus (COVID-19) pandemic may seem like a bad time to think about consolidating your credit card debt. However, now is one of the best times to consider refinancing your debt, and here’s why:

  • The Federal Reserve’s Prime Rate is at an all-time low. The Prime Rate is the interest rate at which the Fed lends money to its top-shelf clients. With record-low rates for banks, the savings are being passed on to new applicants in the form of lower credit card interest rates.
  • Credit card companies are trying to entice new applicants as the average American’s credit card debt levels decline sharply. To bolster their books for investors, banks are offering excellent signup bonuses for credit cards – including lengthy 0% intro APR periods.
  • Reducing monthly payments is becoming more critical as family finances are continuing to be squeezed.

Related Article: Credit Card Debt Declined in June, Says Federal Reserve

Refinancing Mortgages and Other Loans

If you’re refinancing your mortgage, the situation becomes somewhat murkier. Mortgage refinancing will require a new loan – and thus closing costs and origination fees. Over the life of the refinanced loan, the homeowner may end up paying more because of these initial fees and expenses.

The same applies to those seeking to pay a lower interest rate over the longer-term. If you can afford your monthly payments now, you are better off keeping up with your current obligations. Locking in a lower interest rate now for an additional 5, 10, or 15 years can end up costing you considerably more (i.e., you are wasting money for short term gain).


Before you consider refinancing things like your home, auto, or other significant investments, take the time to calculate your budget carefully. Can you reduce spending to meet your obligations, for example?

If you still are considering refinancing, do your homework and calculate the costs for both the short and long terms. Is refinancing going to help solve your problems, or just kick those problems further down the road?

Credit card refinancing is a much simpler – and more straightforward – process. The impact on your credit score is minimal – provided you make your payments on time.

Related Article: How to Quickly Pay Off Credit Card Debt

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About: Cory Santos
Cory Santos

Cory is the senior credit card editor at BestCards, specializing in everything credit card-related. He’s worked extensively with credit cards and other personal finance topics, including nearly five years at BestCards. Cory’s extensive knowledge is an essential part of the BestCards experience, helping readers to live their best financial lives with up-to-date insights and comprehensive coverage of all facets of the credit card space, including market trends, rewards guides, credit advice, and comprehensive credit card reviews.

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