Fed Rate Cuts: Should You Refinance Your Credit Card Debt?

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Last updated on November 3rd, 2020

One of the biggest financial news stories from the coronavirus pandemic is the historically low Prime Rate. The figure, which is the percentage at which the Fed loans money to its most esteemed clients, currently sits at 3.25%. More importantly, the low Prime Rate looks here to stay for a considerable while. Because of the Federal Reserve cuts, should you take advantage and consider refinancing your credit card debt?

Why Refinance Your Credit Cards?

Most credit cards come with a variable APR (annual percentage rate). The APR is the rate at which a credit card account accrues interest over the year. Card issuers base the APR on both the Prime Rate and the creditworthiness of an applicant.

Your creditworthiness can significantly alter your APR. Excellent credit scores currently average a 14.5% APR, and average credit scores weigh in at an APR of 26.2%, according to the BestCards Average APR Guide. This means that even if your credit improves significantly, you might still have the same high-interest rates. In cases like these, refinancing your card debt make sense.

Is Now the Right Time to Refinance Credit Cards?

An easy option for reducing your credit card payments is to contact your bank or lender and ask for a lower rate. This practice is much easier for those with a long history with the bank, however. Regardless, cardholders need to call their lender and negotiate a lower rate if they wish to get one. Be prepared to discuss your payment history, your card usage, and to explain why you think you deserve a lower APR.

For those with newer credit card accounts, securing a better rate might be tricky. Fortunately, there are other ways to refinance your credit cards. The next most practical approach is through a balance transfer. Using balance transfers allows you to take existing card balances and transfer them to another card – ideally one at a lower interest rate. You can then pay off that debt much quicker – and cheaper than before.

Related Article: Should You Consider a Balance Transfer During COVID-19?

What’s the Best Way to Refinance Credit Card Debt?

Balance transfer cards are a popular option for combining card debts and repaying them at a lower APR. Many balance transfer cards come with a 0% APR introductory offer between 3 and 18 months. Once the zero interest period ends, however, the average APR for one of these cards is approximately 16.5%.

This average rate isn’t much better than most other credit cards, meaning unless you can pay the full balance off during the promotional period, you might be better off with another credit card.

Hybrid installment credit cards, like the Upgrade Card, are another option that provides a sensible solution to the issue of refinancing credit card debt. Studies show that credit cards/ installment loan products, like the Upgrade Card, can reduce the time – and money – you need to repay a credit card balance.

The Upgrade Card works by providing up to $20,000 in initial credit, just like a typical credit card. Rather uniquely, however, you can also transfer the credit line into existing accounts to pay off balances, consolidating them into one small payment throughout 12 to 60 months. Where Upgrade differs from credit cards, however, is that interest rates start as low as 6.99% – more than 10% lower than the average balance transfer credit card.

Upgrade Cash Rewards Visa®

Upgrade Cash Rewards Visa®
BestCards.com uses a variation of FICO Score 8, which is one of many different types of credit scores. A financial institution may use a different score when deciding whether to approve you for a credit card. Credit Needed: Excellent/ Good/ Fair
Visa Processing Network
None Annual Fee

Upgrade Cash Rewards Visa®

  • 14.99%-29.99% variable based on creditworthiness and the Prime Rate Regular Purchase APR
  • 14.99% to 29.99% Balance Transfer APR

At a Glance

The Upgrade Cash Rewards Visa® offers no fees, low rates, cash back, and credit lines from $500 to $25,000 in one unique package. The card provides consumers the flexibility and predictability to quickly pay down balances and get debt-free. The Upgrade credit card is one of the lowest regular APR credit cards on the market for those with excellent credit scores, putting it firmly on any list of the best balance transfer credit card deals – or any list of the best credit cards in the U.S.

  • Best Benefits
  • Rates & Fees
  • Why Should You Apply?
  • $200 bonus after opening a Rewards Checking account and making 3 debit card transactions*
  • Earn 1.5% unlimited cash back on card purchases every time you make a payment
  • Combine the flexibility of a credit card with the predictability of a personal loan
  • No annual fee
  • No touch payments with contactless technology built in
  • See if you qualify in minutes without hurting your credit score
  • Great for large purchases with predictable payments you can budget for
  • Mobile app to access your account anytime, anywhere
  • Enjoy peace of mind with $0 Fraud liability
  • *To qualify for the welcome bonus, you must open and fund a new Rewards Checking account and make 3 qualifying debit card transactions from your Rewards Checking account within 60 days of the date the Upgrade Card account is opened. To qualify, debit card transactions must have settled and exclude ATM transactions. Please refer to the applicable Upgrade VISA® Debit Card Agreement and Disclosures for more information. Your Upgrade Card and Rewards Checking account must be open and in good standing to receive a bonus. If you have previously opened a Rewards Checking account or do not open one as part of this application process, you are not eligible for this welcome bonus offer. Welcome bonus offers cannot be combined, substituted, or applied retroactively. The bonus will be applied to your Rewards Checking account as a one-time payout credit within 60 days after the 3rd qualifying card purchase.
  • Regular Purchase APR: 14.99%-29.99% variable based on creditworthiness and the Prime Rate
  • Balance Transfer APR: 14.99% to 29.99%
  • Balance Transfer Transaction Fee: Up to 5%
  • Foreign Transaction Fee: Up to 3%
  • You struggle to pay off your credit card balances
  • You want a structured repayment plan
  • You can reliably pay off your statement balances to earn cash back for your purchases
  • You have a desire to get debt-free quickly
  • You hate penalty or other hidden fees

FAQs About Refinancing Your Credit Cards

Refinancing or consolidating your credit card debt can be confusing. Here are practical answers to some of the most frequently asked questions (FAQs) about credit card refinancing:

Does consolidating cards hurt your credit score?

  • Combining multiple credit accounts into one payment will raise your credit score in the short term. This rise is caused by a higher credit utilization rate on the balance transfer or hybrid credit card. Over time, however, paying down balances will raise your credit score. Plus, on-time payments are a more significant benefit than late payments due to high-interest charges.

Are refinancing and debt consolidation the same thing?

  • Not entirely. Debt consolidation is combining multiple balances into one easy payment. Debt refinancing is changing the loan terms to lock in a lower interest rate. With cards like balance transfer cards or the Upgrade Card, you are mostly doing the same thing – paying down debts and combining them at a lower interest rate.

Can you pay off credit card debt with a personal loan?

  • You can take out a personal loan to pay off credit card debt. In some cases, a personal loan may offer a lower APR than most 0% APR cards from leading card issuers. Some popular personal loan options include OppLoans, Jora Credit, or SuperMoney.

Should I refinance my credit cards?

  • If you find yourself struggling to pay your credit card bill every month, the answer is yes. Refinancing or consolidating credit card debt can be as easy as applying for something like the Upgrade Card and transferring over the balance. Then just pay one smaller bill each month for the duration of the loan terms, and you’ll eventually be credit card debt-free.

Related Article: How to Manage Credit Card Payments During the Coronavirus

About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident credit expert, covering all facets of the credit card space. Cory holds academic degrees in both the U.S. and U.K. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.

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