Over half of Americans (61%) have credit card debt. This is a challenge that affects doctors as well. According to Medscape, 25% of physicians are currently paying off balances on their credit cards.
Credit card debt can impact an individual’s financial, mental and emotional wellbeing and create additional challenges when one becomes ready to buy a house, open a practice, or get a personal loan.
One way to address existing credit card debt is through refinancing. In this article, we take you through the ins and outs of credit card refinancing including how it can help you, how it affects your credit score, and steps to refinancing.
What is credit card refinancing?
Credit card refinancing is the process of taking out a new credit card or loan with better terms to pay off your existing credit card debt. Typically, refinancing is used to obtain a lower interest rate and/or consolidate multiple credit card balances into one.
How can credit card refinancing help doctors?
Because of low or non-existent salaries while in school and training to become a doctor, many take on credit card debt to pay for day-to-day needs and unexpected expenses. Without the means to pay debt off each month or make a concrete plan for repaying it over time, this debt can become toxic.
Refinancing can be a way out of toxic debt. By refinancing your credit card(s) and making a repayment strategy moving forward, you can remove the heavy burden that can result from carrying high-interest credit card debt month to month.
5 ways credit card refinancing can help doctors
- Lower interest rates: Refinancing your debt with a zero or low interest rate credit card or loan can save you money on interest payments over time, freeing up more funds for other expenses or savings.
- Consolidation of debt: Consolidating your debts into a single loan or credit card through refinancing can simplify your finances and make it easier to manage payments.
- Improved cash flow: Refinancing credit card debt can lower monthly payments, which can improve your cash flow. This can be particularly beneficial during the early years of your career when your income may be lower.
- Enhanced credit score: Consistently making on-time payments on a refinanced credit card or loan can positively impact your credit score over time, which can lead to better terms on future loans, mortgages, or lines of credit.
- Focus on career advancement: By reducing financial stress and streamlining debt payments, credit card refinancing can allow you to focus more on your career and professional development rather than worrying about managing multiple debts with high-interest rates.
Downsides of credit card refinancing
The biggest downside of credit card refinancing is for individuals who pay off the old credit cards, leave them open, and then fill them again. This results in double the amount of debt with an even heavier burden than before.
Although closing old credit cards is not the right decision for everyone, practicing responsible debt management moving forward should be a key consideration for any doctor looking at credit card refinancing.
Can credit card refinancing hurt my credit score?
Refinancing your credit card debt could hurt your credit score in the short term, but it will benefit you in the long term as long as you make on-time payments toward your refinanced debt.
Because of the way credit scores are calculated, opening a new credit card or personal loan and transferring your balance will likely drop your credit score a few points because of a hard credit check(s). If you choose to close an old credit card after consolidating, this could also negatively affect your score if it’s the one that you’ve had the longest (how your credit history length is determined).
However, your credit score will improve as you make on-time payments over time. Don’t let a small dip in your credit score deter you from refinancing if it will improve your financial situation (and likely lower your total interest paid!).
3 steps to refinance your credit card debt
There are three primary steps when refinancing your credit card debt.
How to refinance your credit card debt
- Apply for a new credit card or loan. Look for a lower interest rate, lower fees, or other benefits that may help you get rid of your debt faster.
- Transfer your balance. Once your new card/loan is approved, use it to pay off the balance on your existing credit card(s).
- Repay the new debt. Pay back the debt on your new card/loan on time each month.
Credit card refinancing options
When you are ready to refinance your credit card debt, there are two main options: a new credit card or a personal loan.
- Credit card: Low or 0% APR cards can be a great option for refinancing if you are able to pay off your debt within the low/no-interest promotional period (usually 12-18 months). The drawbacks of this option include that they often require good credit, may carry a balance transfer fee, and may have a higher APR than your existing debt once the promotional period ends.
- Personal loan: Personal loans can offer fixed interest rates and lower APRs than credit cards, but it can be hard to get a low rate if you have bad credit and may carry an origination fee. Personal loans can be a better option than opening a new credit card, especially if you think you may not have the funds to repay your debt balance within the promotional period.
See how much you could save
As you decide between refinancing with a credit card or a personal loan, it is useful to assess how the difference in interest rate can impact the growth of your debt balance. We created a tool to help you compare the interest rates of credit cards and personal loans and how that will affect your total interest paid.
Find our Credit Card vs. Personal Loan Calculator here.
Personal loans built just for doctors
If a personal loan could help you take control of your credit card debt, we can help! Panacea’s PRN Personal Loans are built with doctors’ needs in mind.
Get up to $50,000 at rates less than half the average credit card rate with no cosigner requirement and no prepayment penalties. Apply in just 10 minutes today.
