Personal Finance

Is now a good time to refinance your debt?

Stacy Rapacon, special to
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America's credit-card debt is creeping back to prerecession levels and it can be detrimental to consumers who carry a balance.

"Credit-card debt is very likely going to be the most expensive debt that you're ever going to service," said credit expert John Ulzheimer, who has worked for credit bureau Equifax and FICO, creator of the FICO credit score.

People who carry a balance on their credit cards typically pay rates of 17 percent or higher, according to Nick Clements, author of "Secrets From An Ex-Banker: How To Crush Credit Card Debt" and co-founder of price comparison website MagnifyMoney.

But you have a couple of good options to lower your rates — which helps you pay off the debt faster with less interest. And now is a good time to lock in a lower rate before the Federal Reserve raises rates, a move that's expected to come later this year or next.

A balance-transfer offer can be an excellent opportunity. The way it works is you move your existing credit-card debt onto a new card that charges no interest for a limited time. If you continue making regular payments without adding new charges, this strategy is sure to save you a bundle.

Another good option is a personal loan, which may have rates significantly lower than most credit cards. You can apply for one through a bank, credit union or credit-card company. Also consider a marketplace or peer-to-peer lender, such as SoFi or Lending Club.

The best deals — for significant amounts at the lowest rates — will require a credit score of 720 or better to qualify. Also, unlike balance-transfer cards, personal loans start accruing interest immediately.

Which balance should you pay off first?

On the bright side, if your credit score does need a boost, these refinancing strategies can help. A major factor in calculating your score is your credit utilization ratio, the percentage of available credit you use. Clearing the debt from your old card quickly decreases your usage and increases your score.

Plus with a personal loan, you transform credit-card debt, which weighs heavily on your score, into a far less prohibitive form of debt.

"Installment debt is almost benign to your credit score," said Ulzheimer. "So even without getting out of one penny of debt, your credit scores can shoot through the roof, which is going to carry benefits other than just saving money on that one account."

Of course, every good deal has a downside, and in this case, it's you. After transferring your debt, it's easy to mistake the new credit availability as a pass to spend more.

"You could dig yourself deeper into debt, if you forget the reason you transferred the balance," said Rod Griffin, director of public education at Experian. "That's where I see people get into trouble."

But if you can trust yourself to apply this strategy, the first thing you want to do is check your credit score so you know what deals you qualify for. Then, you can compare credit cards using various websites, including, NerdWallet and MagnifyMoney.

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As for personal loans, Ulzheimer suggests checking with the big banks, which tend to offer larger loans. You can also compare your options using MagnifyMoney, where rates range from 4.05 percent to a whopping 39.99 percent.

Just be sure to read the fine print. You need to know how long you enjoy the introductory rate and if it applies to only the transferred balance or includes new purchases. Also find out what your rate will be once the grace period ends.

Understand the repayment terms. Many cards require you to pay off the transferred balance within a set time frame. If you fail to do so, the higher rate may be applied retroactively. Check for balance-transfer and annual fees, too.