Credit cards are basically a secure payment method with many benefits. However, the cards are also an overly tempting loan option for many of us. In total, hundreds of thousands of Norwegians are struggling with credit debt. Refinancing the card debt is the way to a better economy and far fewer worries.
Important for those who have credit debt
The traps you avoid when refinancing, and the benefits you get with them, are the theme of the rest of this article. What you can read about:
- The principle of refinancing
- This saves you when you refinance your credit debt
- Refinancing with and without collateral
- The important psychological factors
- Here’s how to find the best loan for refinancing
Replace the card debt with an unsecured loan
Many people choose to refinance credit card debt using a larger consumer loan, where they combine several cards at the same time. The main advantage is that consumer loans have a much lower interest rate (in most cases). If you have a medium credit rating it is not unrealistic to get an effective interest rate around 12 to 14%. Compare that to credit card rates and it will be easy to see why refinancing makes sense.
If you want to combine larger credit card amounts, for example, Accento Bank, Northian Bank or AnstaBank would be good alternatives. If your debt is lower, consider other offers, such as Santander Consumer Bank. You should disregard banks with consumer loans at the maximum limit of a few tens of thousands. Their conditions are usually at least as expensive as with the credit card companies.
This is refinancing
Refinancing basically means you borrow money to get rid of other debt. The goal is usually to reduce costs. You do this by getting lower interest rates and fewer fees. The term is used not only for credit debt, but also in connection with mortgages, car loans, consumer loans or the like.
However, it is not only in connection with debt problems, or a desire to save costs, that we choose to refinance. For example, the same approach is used when we extend a mortgage to refurbish, or when we move a car loan from one bank to another. However, the refinancing of credit card debt is the most relevant issue.
Terms you get on unsecured loans
The interest rates you offer on a loan without collateral vary greatly. Here, your own credit score will be decisive for the conditions, as all applications are assessed individually. The effective interest rates may at best be around 9%, but it is more common that they are around 12% to 14%. While this is more expensive than a home loan loan, most people benefit from a refinance. Especially if your credit debt includes multiple credit cards, and any small loans on top. This will save not only on nominal interest rates, but also on far fewer fees.
Among unsecured loan products, traditional consumer loans have the lowest interest rates. Today, there are banks offering such loans from approx. 7% interest. The assumption is that you have a good credit rating.
Big potential savings
The cheapest credit cards have effective interest rates of about 15%, while the most expensive ones are well over 30%. In short, this means that unpaid credit debt will cost you somewhere between $ 150 and $ 300 per thousand, per year. If you owe an expensive credit company USD 100,000, you probably pay more than USD 30,000 a year only in interest and fees. In addition, you should pay down on the main itself. Even worse, if you own more credit cards.
How much you save on refinancing depends not only on the cost of your credit debt, but also on the loan you receive. In principle, you have two options, either a secured or an unsecured loan.
Secured loans are the cheapest
You will save the most if you can provide collateral mortgage for the loan used to pay off the credit debt. In practice, this means that you must own your own home. In order for a traditional home bank to give you a refinance loan, the following criteria must be met:
- The home cannot be mortgaged with more than 85% of the market value.
- You must have enough income to service the debt.
- You must endure a potential interest rate increase of 5%.
- You cannot have payment notes.
Already, many with credit debt fall outside, either because they do not own their own home or because the other conditions cannot be met.
Getting rid of your credit card debt is the step that can most often save you the most money with refinancing.
The psychological aspects
If you collect all debt in a single loan, you also receive fewer bills in the mailbox. That in itself has an important psychological effect in many. It is less likely that one bill will be forgotten or intentionally overlooked. In other words, refinancing usually means that you have fewer worries.
Both the cost and psychological aspects become especially important when the debt is already problematic. Unfortunately, some people with credit debt use the same cards to pay past credit bills. This usually ends in an endless spiral, with ever-increasing debt and headaches.
Credit cards have very high effective interest rates. Refinancing helps you clear the debt in favor of a new loan package with better terms.
Find the best refinancing loan
Saving money on refinancing debt from credit cards is quite easy. It should be well done that the interest rates do not improve, almost regardless of who you borrow from. However, you will of course save as much as possible. Here’s how to proceed:
- Get more competitive offers from news banks.
- Choose the bank with the lowest total cost when the loan is settled.
- Choose the shortest repayment time possible.
- Pay extra on the loan if you can.