16 Pros & Cons of Credit Card Refinancing vs. Debt Consolidation

Anybody who carries credit card debt from month to month knows that interest can add hundreds or even thousands of dollars to the total amount they pay. It can be financially and personally stressful to know that you’re paying more than necessary when you’re already feeling a financial pinch.

At Addition Financial, we often discuss debt management with our members. One topic that often comes up is the issue of credit card refinancing vs. debt consolidation. Since we recognize that not everybody understands the differences between these two options, here are 16 pros and cons of credit card refinancing vs. debt consolidation to help you make the best choice for your financial future.

How does debt consolidation affect your credit?

Many of our Addition Financial members who are considering debt consolidation worry about the impact it will have on their credit. The good news is that there is minimal negative impact on your credit in the short term and the potential for significant positive impact in the long term.

Your credit score will take a small hit when you consolidate your debt. That’s because approval for either credit card refinancing or a debt consolidation loan requires a hard credit inquiry which will cause your credit score to dip slightly. However, the impact is minimal and will only deduct about 10 points from your credit score.

As you pay down your debt in a timely manner, both your payment history and your credit utilization will improve. Your payment history accounts for 35% of your FICO score while your credit utilization counts for 30%, so being consistent with payments will improve your credit score over time.

How long does debt consolidation stay on your credit report?

There are two ways that debt consolidation will show up on your credit report. The first is the hard credit inquiry we mentioned above, which may stay on your report as long as two years but should not impact your credit score for more than a year.

The other is the inclusion of the debts paid off when you consolidated your debt. These are like any other debts and will remain on your credit report for seven years. However, as mentioned above, making consistent, timely payments on your consolidated debt will steadily improve your credit score. Delinquency on old accounts will still be visible but less impactful on your score with time.

What is the difference between debt consolidation and credit card refinancing?

There are two ways to consolidate your credit card debt. Before we reveal the pros and cons of each, here’s what you need to know about how they work.

What is debt consolidation?

Debt consolidation involves taking out a personal debt consolidation loan and using the proceeds of the loan to pay off your credit card debt. You will then make monthly payments on the loan until it has been paid off.

In most cases, personal loans have lower interest rates than credit cards. That means that you’ll pay a lower interest rate and may, as a result, be able to make accelerated payments to get out of debt quickly.

What is credit card refinancing?

Credit card refinancing involves applying for a credit card with a low introductory rate and a high enough credit limit to allow you to transfer your balances on other cards to the new card. Instead of having multiple monthly payments to make, you’ll have a single payment with a lower interest rate.

Many balance transfer cards offer low introductory rates for 12 to 18 months, sometimes as low as 0%. If you can pay off your debt before the introductory rate expires, you can save a significant amount of money by refinancing your credit card debt.

8 pros and cons of debt consolidation loans

Getting a debt consolidation loan will allow you to pay off your existing credit card debt and replace it with a single monthly payment. As you might expect, there are pros and cons to consider before you apply for a debt consolidation loan.

Pros of debt consolidation loans

  • Instead of multiple monthly payments, you’ll have a single monthly payment that’s predictable.
  • Most debt consolidation loans have lower interest rates than credit cards, meaning that you’ll save money in the long term.
  • In most cases, you’ll have three to five years to pay off your loan.
  • Many loans don’t require collateral.

Cons of debt consolidation loans

  • If you get a credit union or bank loan, you’ll have to pay closing costs of 3% to 5% of the loan amount.
  • If you use a HELOC or home equity loan to consolidate debt and miss payments, you could lose your home to foreclosure.
  • You’ll need a good-to-excellent credit score to qualify for a low interest rate loan.
  • If you continue to use credit cards, you could end up with even more debt than you had when you started.

8 pros and cons of credit card refinancing

Like debt consolidation loans, credit card refinancing has advantages and disadvantages.

Pros of credit card refinancing

  • A low introductory rate is likely to mean that you’ll pay less each month than you were before refinancing.
  • You may be able to get a single card with a limit high enough to allow you to transfer all of your credit card debt.
  • You can save a significant amount of money if you can repay your credit card balance before the introductory rate expires.
  • If you have a good credit score, you can get approved for a new credit card quickly.

Cons of credit card refinancing

  • Introductory rates only last between 12 and 18 months and will be replaced with a higher, variable rate upon expiration.
  • Most balance transfer credit cards charge a balance transfer fee between 2% and 5% of the amount transferred, which will add to your debt initially.
  • There are penalties for late payments, including the possibility that the credit card issuer will negate the introductory rate and charge you a significantly higher APR going forward.
  • New purchases do not qualify for the introductory rate.

Similarities and differences between credit card refinancing and debt consolidation

To help you decide which option is right for you, let’s review some of the key similarities and differences between credit card refinancing and debt consolidation.


There are a lot of commonalities between debt consolidation and credit card refinancing. Here are some of the most striking similarities:

  • Both options have the potential to allow you to pay off all existing credit card debt and replace multiple monthly payments with a single payment.
  • If you have good credit, you are likely to qualify for an interest rate that is substantially lower than what you’re paying on multiple credit cards.
  • Both options involve up-front charges for closing costs or a balance transfer, although there are exceptions to the latter.
  • Both options will cause a minimal hit to your credit score but have the potential to improve your score in the long run.
  • There are risks involved with both options, especially when it comes to additional credit card spending. Neither option will fix the underlying behavior that caused you to accrue debt and both require a debt management plan to minimize the risk that you’ll repeat financial mistakes.
  • Late payments for either option have potentially serious consequences.


Here are some of the most important differences between credit card refinancing and debt consolidation loans:

  • Credit card refinancing typically comes with a low introductory rate that applies for 12-18 months and changes to a variable rate, while debt consolidation loans often come with a fixed rate that means you’ll have predictable monthly payments.
  • There is no penalty for paying more than the minimum with credit card refinancing but some loans have early prepayment penalties. You’ll need to read the fine print if you want the option to accelerate your payments on a debt consolidation loan.
  • Late payments on either option can impact your credit score, but if you are late with your credit card refinancing payments, you run the risk of losing your introductory rate.
  • If you use a home equity loan or HELOC to consolidate your debt, your home serves as collateral. If you default on your loan, you could lose your home to foreclosure.
  • Most balance transfer credit cards require good-to-excellent credit (a score of 670 or higher) to qualify for a low introductory rate. The required credit score for a loan may be less, as low as 580.

credit card debt consolidation infographic

Should you consolidate debt with a loan or credit card refinancing?

Choosing the option that’s right for you requires careful consideration of the pros and cons of credit card refinancing and debt consolidation.

As a rule, it’s easier to qualify for a debt consolidation loan than it is to qualify for a balance transfer card, although there are exceptions. You should compare interest rates, fees and terms before you make a decision.

Some balance transfer cards, including Addition Financial’s Platinum Low Rate card, do not charge a balance transfer fee. In most cases, a card with no transfer fee will be a better choice than one that charges a fee, since the fee will temporarily increase your existing debt.

We suggest crunching the numbers and comparing the total amount you’ll pay with each option before making a decision. Of course, you should also make sure that you can make the monthly payments, since delinquency can hurt your credit score.

Affordable debt consolidation with Addition Financial Credit Union

Either credit card refinancing or debt consolidation can help you get out of debt. The key is to compare all costs and combine debt consolidation with budgeting and a debt management plan to make sure you don’t accrue more debt.

Are you looking for an affordable way to consolidate your debt? Addition Financial is here to help. Click here to read about our Signature Loans and apply today!

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