Rolling over credit card debt is the process of moving a credit card balance from one credit card to another lender. Refinancing a loan is another option when you can’t make your current payments.
When you refinance a loan, you get to pay you’re your existing mortgage with the monies received from the new loan. When roiling over credit card debt of seeking to refinance a loan, the rates you will pay also depend on whether the loan is secured or unsecured.
Where to move your money
When rolling over credit card debt, you can move an existing balance onto another, existing credit card loan. This allows you to move $500 store card balance onto a lower interest rate credit card with minimal effort. You are then free to close the store card account while making a single payment with a lower interest rate to the consolidated account.
There is an option to move an existing credit card balance to new credit card balance to a new credit card offering a low, teaser interest rate. A common example of this is moving a $4,000 debt from a credit card with a 15% interest rate to a new credit card with a 0% interest rate for the first six months.
This arrangement can potentially allow you to pay off more principle with the same monthly payments for the first six months or lower your minimum monthly payment for the first few months. However, you must be careful with this arrangement, because some credit cards with low teaser rates only offer 0% interest on new debt charged on their credit card, not a roll over balance.
Another Option – Where to move your Money
Another option is moving credit card debt into your home equity line of credit or a second mortgage (refinancing an existing loan). The benefit of this arrangement is a lower interest rate, since the debt is secured by your home.
One disadvantage of this arrangement is that you will be paying ten to thirty years on debt racked up buying clothes, eating out or taking trips, increasing the total interest paid on the debt to more than the original amount spent. The other downside is that your debt has changed from unsecured to secure. If you were financially strapped, you could have negotiated a settlement with a credit card company.
A home equity line of credit isn’t negotiable unless you are going through bankruptcy, and they are likely to say no if your home has enough equity to pay off the line of credit and your first mortgage. If you roll over an existing credit line into a new loan secured by your home, you can refinance the second mortgage to extend the term and make the payments more affordable.
If you have improved your credit score, rolling over the unsecured debt into the secured loan and refinance the consolidated balance at a lower interest rate is also an option. If you cannot get a better deal through refinancing the mortgage, a cash back mortgage refinance can give the money to pay off your credit card debt without increasing the interest rate on your home loan or equity line of credit.
What factors determine your Interest Rate?
Your credit score will affect the interest rate you are offered when rolling over credit card debt or seeking to refinance a loan. The balanced to be rolled over will also affect the interest rate; larger balances can trigger higher interest rates. Your credit score and interest rate will also suffer if the roll over balance causes you to come close to or exceed the credit card limit.
If you roll over a large debt and continue racking up new credit card debt, the lender may increase your interest rate due to the risk that you will not be able to pay off the loan. If you continually refinance your existing loans instead of making significant progress paying them off, your creditors will eventually stop offering favourable loan terms.
Before considering refinancing as an option, you will need to consider the various fees associated with it, as fees normally have to be paid up front, it may take some time before your savings may exceed your costs.
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