Monday, July 9, 2012

How To Refinance Credit Card Debt

As anyone deep in credit card debt will be quick to confirm, it is not an easy task to pay off debts. Many people despair ever being able to pay off mounting credit card debt that seems to grow with every passing day. But there are ways to tackle even the most stubborn debt burden, one of which is to refinance credit card debt.

Refinancing credit card debt does not always mean taking out another loan or incurring more debt. It means tackling your commitment to repay credit card balances with an intelligent action plan which steadily gets you out of debt without destroying your lifestyle or forcing you to give up all enjoyment and leisure.

Make Your List

The first step in getting out of debt is to know exactly where you stand. Make a list of all your credit cards. Take particular note of the outstanding balance on each of them, and the interest rate that you are being charged on that balance. Other relevant factors to note down are your minimum monthly payment due, and the minimum payment percentage on your bill.

While it may initially seem scary and nerve-wracking to acknowledge the extent of your financial woes, the fact is that without a realistic idea of where you stand, it is impossible to work out a refinancing plan that can succeed.

Calculate Your Minimum Payment

Total the minimum payments due on all your credit cards. If you have 5 cards, each with a minimum due of , this means you'll have to come up with 0 every month at least in order to salvage your credit standing.

Decide If You Can Pay It

Drawing up a budget can help you evaluate your current financial status and see if you will be able to pay off your minimum balances and reduce credit card debt. A budget tells you exactly how much income you are earning and what it is being spent on. You must list out all items on which you are spending money, and see how much you'll have left after meeting those expenses. This extra cash is what will go towards paying your credit card debt without refinancing.

If you have enough left over to meet the minimum payments on all credit cards, and then begin paying off outstanding balances on the card debt, then you will not require other options. The more you have left to pay the balance on expensive credit cards, the sooner you will get out of debt.

But what if you don't have enough money to meet the minimum commitments, or start paying down the existing credit card bills? Your next option is to consider refinancing options that involve taking out another loan, but one with lesser interest rates than your existing debt. For instance, you can take a home equity loan where you will borrow against the equity of your own home. In effect, you will be pledging a part of the ownership in your home to the bank, in exchange for a loan which you can use to pay off costlier credit card debt.

The advantage in refinancing your credit card debt lies in the different rates of interest that you'll pay. Typically your credit card interest rate will be twice as high as from a home equity loan, which can save you a considerable amount of money depending upon the size of your existing debt. The risk or downside comes from the fact that you now own less of your home, and any default on paying back that loan will result in the creditor taking possession of your asset.

But even if it is not a decision to be taken lightly, a home equity loan as a short term refinancing option to get out of overwhelming credit card debt can be very rewarding. The key is to avoid slipping back into bad spending habits. So once you are out of credit card debt, make sure you remain in good financial standing by getting rid of those cards you no longer use, and shifting over to a credit card company that offers you the most competitive interest rates.

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