Debt Consolidation Loan vs. Credit Card Refinancing: How To Choose

If your credit card debt has been climbing, you’re not alone. At the end of 2024, credit card debt had increased by $45 billion to a new high of $1.21 trillion, according to the Federal Reserve.

The average credit card interest rate is 21.37%. So not only are Americans borrowing more, but they're paying a lot to do it. If you're looking for relief, you may be able to consolidate or refinance high-interest credit card debt at a lower interest rate. Here's how.

Credit card refi and debt consolidation rates

What is credit card refinancing?

Credit card refinancing is when you take out a personal loan to pay off your credit card debt. This leaves you with just one loan and one payment to manage.

If you can qualify for a lower interest rate or need to reduce your monthly payment, refinancing your credit card debt might be a good idea.

However, it’s important to consider both the pros and cons of credit card refinancing before deciding if it’s right for you.

Pros

• Could lower your interest rate: Depending on your credit, you might qualify for a lower interest rate than what you’ve currently been paying. This could save you money on interest charges and even help you pay off your loan faster.
• Reduce your monthly payments: If you opt to extend your repayment term through refinancing, you could lower your monthly payment — lessening the strain on your budget. Just keep in mind that choosing a longer repayment term means you’ll pay more in interest over time.
• Combine multiple cards: Refinancing lets you consolidate your credit cards into one loan, which could help make your debt much easier to manage.

Cons

• Might be hard to qualify if you have bad credit: You’ll typically need good to excellent credit to qualify for a personal loan. While some lenders offer debt consolidation loans for bad credit, these usually come with higher interest rates compared to good credit loans.
• Could come with fees: Some personal loan lenders charge fees — such as origination fees — that will add to your overall loan cost.
• Doesn’t reduce debt: Although you might end up paying less in interest, you’re still responsible for all of your original debt. Additionally, you could end up in debt again down the road if you don’t change your financial habits.

If you decide to take out a personal loan to refinance your credit cards, it’s important to consider how much that loan will cost you in the future. This way, you can prepare for any added expenses.

You can estimate how much you’ll pay for a loan using our personal loan calculator.

Credit card refinancing vs. debt consolidation

There is little difference between credit card refinancing and debt consolidation — both refer to the process of taking out a new loan to pay off your debt. “Consolidation” implies that you'll pay off more than one debt, while “refinancing” suggests you'll pay off just one debt (like a credit card) with the new loan. Loans for credit card refinancing and debt consolidation are generally the same types of loan.

You’re not limited to paying off only credit cards with a debt consolidation loan. You can also consolidate other types of debt, such as medical bills, payday loans, or personal lines of credit.

Credit card refinancing vs. balance transfer cards

Another option for consolidating credit card debt is a 0% APR balance transfer card. Instead of using a personal loan to pay off your old cards, you’d move your balances to a new card. If you repay your balance before the 0% APR promotional period ends, you can avoid paying interest. But if you can’t pay off the card in time, you could get stuck with some hefty interest charges when the rate adjusts.

Also, balance transfers aren't free. Most cards charge 3% to 5% of the amount you're transferring, which is generally added to your balance. 

How to choose between a personal loan and balance transfer card

While both personal loans and balance transfer cards can be used to consolidate or refinance debt, there are situations that could make one a better choice over the other.

Here are a few situations where a personal loan could be a good option:

• You want to consolidate multiple kinds of debt: If you have other kinds of debt in addition to credit cards that you’d like to consolidate — such as medical bills or other loans — then a personal loan for debt consolidation is a better choice.
• You can get a lower interest rate: Personal loans usually come with lower interest rates than credit cards. This could make a debt consolidation loan a good option if you want to save as much as possible on interest while getting out of credit card debt.
• You want a fixed monthly payment: Most personal loans come with fixed interest rates, which means your payment won’t ever change.

On the other hand, a balance transfer card might be a better choice if:

• You can get a card with a 0% APR period: If you can take advantage of a 0% APR introductory period on a balance transfer card, you could avoid paying any interest. Just remember that you’ll have to pay off the card by the time this period ends.
• You don’t owe very much: If you have a smaller balance and get a card with a 0% APR period, you might have an easier time paying off your card in time so you won’t get stuck with interest charges down the line.
• You want to earn rewards: Some balance transfer cards offer rewards like cash back, points, or miles. But be careful — if you’re focused only on earning rewards, you could end up deeper in debt.

How to apply for a debt consolidation loan

Understanding what you can expect from the loan application process can help you get the debt consolidation loan that’s right for you. Here’s what you need to do:

1. Understand why you want to consolidate: If you want to save money, then look for a loan with a lower rate than what you’re currently paying. This way, more of your payments will go toward paying down the principal balance each month instead of the interest. If you want to lower your payments to make room in your budget, then consider a loan with a longer repayment term. Just keep in mind you may pay more in interest over time this way.
2. Figure out how much you need to borrow: Make a list of the debts you want to consolidate — such as your credit cards, private student loans, and medical bills — along with their balances and interest rates. The debt consolidation loan should cover the sum of these debts.
3. Check your credit score: This can help you figure out whether you’ll qualify for a debt consolidation loan, and what terms you might get. Generally, a higher credit score can help you qualify for the amount you need at an affordable interest rate. You can get a free copy of your credit report from the three major credit bureaus — Equifax, Experian, and TransUnion — from AnnualCreditReport.com every week through the end of 2024. This enables you to spot any errors that might be impacting your score. Be sure to resolve these issues with the appropriate bureau before moving forward.
4. Compare lenders and prequalify for loans: Now that you understand what you’re looking for and where your credit stands, you can shop around and get prequalified with multiple lenders. Compare loan amounts, interest rates, fees, repayment terms, eligibility requirements, and whether the lender offers discounts.
5. Apply for the loan: Once you find a loan that fits your needs, submit an application. You may also need to submit documentation, such as recent pay stubs, tax returns, bank statements, and a government-issued ID.
6. Wait for your funds: Depending on the lender, it may take just a few minutes to get approved or a few days. If you’re approved, you may receive your loan funds the same day or within a few business days. The lender may direct deposit your loan funds or pay off your creditors for you.

Learn More: How To Get a Debt Consolidation Loan

Interest rates and loan amounts by credit score and income

If you’re curious how likely you are to qualify for a debt consolidation loan or credit card refinancing, what rate you might get, or how much money you might be approved to borrow, take a look at the charts below, which are based on Credible user data between April 2024 and March 2025.

Personal loan interest rates by credit score

But your credit score doesn't entirely dictate the rate you'll get. In the second chart, we see that income can serve as a compensating factor to help you get a lower rate or qualify for a larger loan. And average FICO scores, regardless of income, tend to be in the middle of the good credit score range. 

Personal loan interest rates by income

Debt consolidation for bad credit

If your credit is on the low end, it’s still possible to get a debt consolidation loan. One option is to take out a debt consolidation loan from a lender that works with bad-credit borrowers. However, these usually come with higher interest rates compared to loans for good credit.

Adding a cosigner with strong credit may help you qualify for a loan with better terms. A cosigner is a person who agrees to take on joint responsibility for your loan, which reduces the risk for your lender. You’ll need to find a lender that allows cosigners and check whether your cosigner meets the lender’s qualification requirements. Keep in mind that if you don’t make your payments, your cosigner will have to pay off your loan, which could damage your relationship.

If you don’t know someone who can cosign your debt consolidation loan, you may consider putting off the loan for a few months. In the meantime, you can work on improving your credit or increasing your income to boost your chances of approval.

Read More:

• How Much Credit Card Debt Is Too Much?
• How To Negotiate Credit Card Debt
• Pros and Cons of Debt Consolidation
• How Debt Consolidation Helps Your Credit
• Debt Consolidation vs. Balance Transfer
• Debt Consolidation Loans for Fair Credit

Dori Zinn contributed to the reporting for this article.