December 07, 2021

Can You Refinance a Credit Card with a Business Term Loan?

One funding option you may want to consider is credit card refinancing with a business term loan. It can make the debt payoff process easier and give you the opportunity to save hundreds or even thousands of dollars on interest. Although incurring credit card debt can be stressful, there are ways to pay it off and get your business finances back on track. In addition, there are many lenders that will provide funding to business owners with debt. In this blog post, we'll further explain what you need to know about credit card refinancing. By being aware of your options, you can determine how to best refinance your existing debt.

What is Credit Card Refinancing And How Does It Work?

Credit card refinancing is a debt consolidation method that can simplify the way you pay off your credit card debt. If you decide to take this route, you can take out a business term loan amount to pay off your credit card balance. There are several potential benefits of doing so including:
  • Lower Interest Rate: If your credit card debt has left you with higher interest rates than anticipated, refinancing it may save you a great deal of money.
Depending on your credit situation, you may be eligible for a lower interest rate. This can save you hundreds or thousands of dollars and help you pay off your debt faster.
  • Reduced Monthly Payment: If you're struggling to make debt payments on-time, you might be able to choose a consolidation loan that has a long repayment term. A longer loan term may lower your monthly payments and free up your monthly cash flow. The caveat, however, is that you’ll pay more in interest payments in the long run.
If you aren't sure which option is better for your business finances, you may benefit from consulting an accountant or financial advisor. They'll be able to tell you the best course of action before you make a decision.
  • Combine Multiple Card Debts: It can be overwhelming to keep track of multiple credit card debts with various rates and payment schedules. By refinancing your debt, you can roll the debt from each of your credit cards into a new loan. You might also be able to consolidate other types of business debts. If you've refinanced your student loans, you may be familiar with how this process typically works.
It’s important to note that refinancing your debt won't change the principal you owe. This means if your business has $10,000 in credit card debt, for example, you will still owe $10,000. The good news is you might save money in interest and reduce the overall cost of your debt. It can also be less daunting to pay off one debt that has one due date instead of trying to juggle numerous debts. New call-to-action

Is Refinancing Credit Card Debt with a Business Term Loan a Good Idea?

If you’d like to refinance your credit card debt with a business term loan, you should be aware of the pros and cons that come with this debt refinancing option. Although you may think that refinancing is an immediate Before you move forward with refinancing your debt with a business loan, here are some steps to follow:
  • Review All Fees: Make sure that this strategy makes financial sense before you pursue it. Look at the “interest charge” or “finance charge” on your credit card bills, which is the cumulative fee you pay for carrying a balance beyond the grace period.
Also, consider the annual fees and service fees on your credit cards. Don’t forget to look into the origination fee, application fee, and other fees you might incur if you take out a business term loan. Unfortunately, there are some business loans that have numerous hidden fees, and you may put yourself in a worse financial situation if you take out additional funding.
  • Do Your Research: There are countless banks, credit unions, and private lenders that offer business term loans. Before applying we suggest shopping around to find the various options at your disposal. Compare the rates, terms, and fees of each loan option that you have.
Once you find a business loan lender and term loan that meets your needs, read the lender reviews to make sure they’re legitimate and highly rated. Often, you'll be able to determine if the lender offers a good financing experience based on their reviews. In addition, before applying, you may benefit from contacting the business loan provider directly. Explain to them what your financial situation is, and see if they offer loan specifically for business debt refinancing. This will help you eliminate lenders who's qualifications you don't meet, while also forming a relationship with the lender that you decide to work with.
  • Keep Your Accounts Open: If you decide to refinance your credit card debt with a business term loan, you may be tempted to close your existing accounts. It’s in your best interest to keep them open, as closing them can take a toll on your credit score.
As you likely know, having a poor credit score will hurt your business's finances further, and may make it harder to secure financing in the future. If your credit score gets too low, it can be very difficult to improve it, so be sure to take this into consideration.

When Should You Avoid Debt Refinancing?

In some cases, refinancing your credit card debt isn’t a good move and could hurt your business's finances. If you have poor credit, for example, you may have trouble qualifying for a business term loan that offers the low rates you’re seeking. Due to this, we suggest trying to improve your credit before you apply for a business loan and refinance your credit card debt. Also, if your credit card balances are relatively low, loan refinancing options aren’t worth considering. You may be better off just paying them off or using a 0% balance transfer card so you can save some cash on interest. Although paying off any debt can seem daunting, it will be better to cut costs in order to pay off your small amount of debt. That way, you won't have to go through a complicated refinancing process over a relatively small amount of debt that you can pay off. In addition, if you rely on or often use the rewards that come with your credit card like cash back or travel points, think twice before refinancing with a term loan. Once you do, these rewards will no longer be available to you.

Conclusion: Improve Your Business Finances with Credit Card Refinancing

Depending on your small business's financial situation, taking out a business term loan to refinance your credit card debt may be a smart decision. In fact, it may be just what you need to break the cycle of debt and steer your business toward success. Since this financial strategy might reduce your interest payment and lower your monthly payments, it can also allow you to pocket more of your hard-earned revenue. Has your business taken out a term loan in order to refinance existing debt? If so, let us know how this financial decision helped your business's finances in the comment section below!