There are several ways to pay off credit card debt: restructuring, refinancing, or applying for a consumer loan.
However, it is important to know the following:
- Restructuring is possible only if credit cards are issued in one bank, and besides, this will not affect the credit history in the best way.
- Inappropriate consumer loans are issued at substantial interest rates, and such a replacement is often not at all beneficial.
- Of these three methods, refinancing is the most beneficial. It allows you to combine debt on cards of different banks at a lower percentage.
When Is it Profitable to Refinance Credit Cards
Any loan requires a careful calculation of conditions – otherwise, instead of improving the situation, the debtor will worsen it. For example, you should not refinance a credit card loan if it takes a lot of time to reissue it. Interest will accrue, which will nullify the savings.
It is beneficial to refinance a credit card if:
It is not the only one – several loans with complex interest are combined into one at a low rate and the debt burden is reduced.
The card has been drawn up for a long time – the old cards, as a rule, have worse conditions, and the holder is forced to spend huge amounts of money simply on paying interest, without reducing the “body” of the debt.
The holder understands that he will not be able to repay the loan for at least a year – the accumulated interest will be too high, and refinancing will significantly improve the financial position of the debtor.
To determine whether refinancing is beneficial, you need to calculate the amount of overpayments for each card and compare it with a monthly payment on new conditions. A deal can be called profitable if the debtor understands that it will not repay the loan during the year, and the new rate will be more than 2% lower than the previous one.
As a result, refinancing will allow:
To combine several credit card debt into one — it will be easier to control.
Reduce monthly payments – banks, seeking to attract customers, set refinancing rates lower than standard conditions for credit cards.
Extend payment terms – a number of banks do not change rates, but “stretches” payments over time, thereby reducing monthly payments.
Become a client of another bank – more reliable or offering favorable conditions (for example, a client’s salary account is opened in it, which gives the right to benefits).
To maintain a good credit history – unlike debt restructuring, refinancing does not worsen it.
It is not enough to find out which bank refinances credit cards – it is important to find really favorable conditions. Most commercial credit institutions in world have a common base for refinancing agreements, and good statistics exist for them. For example, in Moscow, the average amount of refinancing card consumer loans is 650 thousand dollars.
Rates vary depending on the bank, but you need to carefully study the conditions – the exact figure may depend on the amount required, the duration of the refinancing loan, the fact of obtaining insurance or refusing it, the presence of late payments on the card (this is not about the main debt, but about the minimum payments, fines, etc.).
Other general conditions for refinancing:
The number of cards that can be refinanced simultaneously – no more than five.
The minimum and maximum amount of debt (total on all cards) – from 30-50 thousand dollars to 1.5-3 million dollars, depending on the bank.
Term of refinancing – as a rule, from 12 months to 5-7 years.
Customer registration in the Country’s Federation, age from 21 years, the presence of a constant income of 10-15 thousand dollars per month, excluding taxes, etc.
For each proposal, you need to calculate the amount of interest and the final payment. For example, refinancing of credit cards from Bank Saint Petersburg provides for a rate of 11.9% for a period of up to two years, if you provide information on the repayment of previous loans.
Let’s compare (the calculations are approximate, but allow us to assess the situation).
Your credit card debt is 100,000 dollars.
Rate – 16% per annum.In order to fully repay it in 2 years with more or less even payments, you need to repay the accrued interest + 4 167 dollars of the principal debt every month (the first payment will be 5 500 dollars, the last – 4 214 dollars). In just 2 years you will pay 116,000 dollars. Overpayment – 16,000 dollars.
The rate is 21% (and this is not the limit, it can be higher). Here the situation is getting worse. For a full and approximately uniform repayment in two years, 121,245 dollars will be needed if you start by depositing 6,750 dollars (5,000 dollars will go to pay off the main debt) and after 5 months go to the previous scheme “interest + 4,167 dollars of the main debt”. Overpayment – 21,245 dollars.
At a rate of 11.9% at Bank Saint Petersburg for a period of 24 months, the total amount payable will amount to 113 323 dollars. Overpayment – 13 323 dollars. Moreover, the monthly payment will amount to 4,884 dollars (and in the first month even less – only a little more than 1 thousand).
Also take into:
Account such nuances: Repayment of a credit card (that is, renewal of the credit limit) – the risk of new expenses. And this violates the original scheme and again increases the debt. With refinancing, you cannot spend too much. Unless, of course, open new credit cards.
To reach the amounts in the calculation, you will need to independently control the amount and regularity of payments. The bank will remind you of the payment under the refinancing agreement. In addition, a constant amount is more convenient for family budget planning.
What documents are needed for refinancing?
In order to refinance several cards at the same time, the client provides his passport to the bank with registration in the region where the branch is located. The most advanced institutions provide the opportunity to send an application from the site. Among other mandatory documents in the standard package:
2-NDFL certificate or a similar document confirming solvency – note that there are banks that allow it not to be issued if the loan amount is small (up to 300 thousand).
Documents with full information on card loans – statements certified by the creditor bank, certificates of termination of loan agreements.
Confirmation of the place of work – for example, a copy of the work book with a “wet” stamp of the organization.
Second personal document – TIN, driver’s license or another.
Cards on which the debt is repaid by refinancing should be closed, even if the bank does not require it. Having got rid of the loan, you can get a new one, on much more favourable terms, and clearly control the movement of funds on it.