From savvy investors to diligent savers, no one is immune from bad luck or a string of poor decisions when it comes to debt.

Fortunately, challenges with debt don’t have to last forever, and there are several time-tested solutions that can get that debt load off your shoulders.

The question is how to decide which tool to use and when.

This article will examine two of the most popular solutions: credit card refinancing and debt consolidation. While both can help reach the same end goal, each comes with its own quirks.

Keep reading to learn the important distinctions between these two credit relief solutions to understand which is more suitable for you.

Understanding credit card refinancing

Credit card refinancing, commonly called credit card balance transfers, involves moving the balance from at least one credit card to another.

The idea of a balance transfer is that you take out a credit card at a lower interest rate and use its balance to pay off one that's charging a higher rate.

Because of the lower rate, refinancing can lower the debt load for people struggling to make payments. Even those that aren’t struggling can benefit from obtaining a lower rate.

How credit card refinancing works

  1. Research: Identify a credit card offering a lower interest rate that will permit a balance transfer. Ensure you clearly understand all the terms of the new card. For example, is the introductory interest rate temporary? If so, what will the rate be when the period expires? Does it still make sense?
  2. Apply: Submit an application for the credit card of your choice. Approval will be determined based on your credit score, income, and other factors.
  3. Transfer: Work with your new credit card issuer to transfer your existing balance to the new card. This can usually be completed online or over the phone. The new issuer adds the outstanding total to your account and pays off your old card balances.
  4. Repay: Work on paying off the balance for the new card. If you secured an attractive introductory rate, try to pay off as much as you can during the promotional period to maximize the benefits.

Credit card refinancing pros and cons

Debt consolidation deep dive

Debt consolidation is when you take out a new loan to pay off existing debts. It’s similar to credit card refinancing because you can merge multiple balances into one.

The new loan will typically have a fixed interest rate, providing the borrower with a consistent, simple, and predictable debt payment schedule.

How debt consolidation works

  1. Research: As with credit card refinancing, start by researching available debt consolidation loan offers from banks, credit unions, or online lenders. Look for lenders with the most competitive interest rates, lowest fees, and best reviews.
  2. Apply: Once you’ve identified your preferred lender, apply for a debt consolidation loan. Approval will depend on your overall credit health.
  3. Disburse: After obtaining approval, funds will be disbursed (paid out) to clear the existing debts. Depending on the service, this step may be done by either the borrower or the lender.
  4. Repay: As with credit card refinancing, you are left with a single debt obligation. What might have been three, four, or more loans have been combined into one monthly payment, usually with a lower interest rate.

Debt consolidation pros and cons

Debt consolidation vs credit card refinancing: Key distinctions

Debt consolidationCredit card refinancing
Interest ratesUsually, a fixed rate for the entire duration of the loanGenerally, a lower competitive introductory rate (i.e., 12 months) before potentially rising significantly
Monthly paymentsPredictable, fixed monthly paymentsLess predictable, fluctuating payments are possible
TermsTypically, longer-term repayment schedulesOften, a short-term promotional period before transitioning to a higher rate
Credit score impactRequires a hard inquiry, which can hurt your score. Over time, however, it can have a positive impact, provided you make timely paymentsSimilarly, credit card refinancing requires a hard inquiry and can temporarily lower your credit score, but you can eventually improve it if you maintain diligent repayment
SuitabilityBest for those individuals with multiple high-interest debts wishing to simplify their payment schedule and secure a lower interest rateBest for those with good credit scores who can take advantage of low or even zero-interest-rate offers

Do you have multiple credit cards with high balances? Have you found another card that offers an attractive interest rate that you might qualify for? Are you confident you will make a substantial dent in your balance during the introductory period?

If so, credit card refinancing is likely a solution you should consider.

On the other hand, debt consolidation may be your best route if you have multiple loans you're having trouble covering. If approved, you can streamline and lower your monthly payments and potentially secure a lower interest rate.

While both solutions offer a viable pathway to freedom from debt, the best one depends on your current financial situation, the structure of your debt, and the nuances of each product.