Many in today’s economic landscape are unfortunately struggling with high-interest credit card debt. Thankfully, there are a couple options (among others) that people can pursue to alleviate the burden – a credit card balance transfer and a cash-out refinance.
Both offer unique advantages, but what’s the difference between these two options and which one is better for you? While the answer depends on your specific situation, here’s an overview of what you should consider:
What is a Balance Transfer?
Balance transfer credit cards enable people to move existing debt from one card to another. This means they can access a new credit card offering a promotional 0% APR (annual percentage rate) for a limited time. This strategy removes interest payments completely, but only during a promotional introductory period.
In other words, the honeymoon doesn’t last forever.
Once that introductory period ends, your interest rate can jump dramatically, sometimes by more than 20%. This makes it much harder to pay off your debt. There’s also usually a one-time transfer fee, often around 3–5% of the amount moved. If you’re not careful, the temporary savings can quickly turn into a long-term burden.
What is a Cash-Out Refinance?
A cash-out refinance allows you to refinance your existing mortgage for more than you currently owe, and receive the difference in cash. That cash can subsequently be used to quickly pay off high-interest credit card debt.
For homeowners, a cash-out refinance offers a more stable and potentially more cost-effective solution.
Here’s why this option shines: Mortgage interest rates are much lower than credit card interest rates. Tagging your credit card debt to a mortgage will yield savings for you over the life of your loan.
For example, refinancing at a fixed rate of 5.99% instead of paying 24% on credit card debt will save you thousands annually.
Consider the following scenario:
Let’s say you are struggling with $15,000 of credit card debt. Rather than paying 24% interest on that, you get a cash-out refinance for more than you owe on your home at 5.99% and it nets you $15,000 in cash. Congratulations! You’ve just reduced your interest payments from $3,600 per year to just $898 per year! That means, you’re saving over $2,700 annually.
Beyond the savings, cash-out refinances offer stability. Unlike balance transfers, which will see you paying a large interest rate on your debt after the introductory period ends, your mortgage rate remains fixed for the duration of the loan. That means no surprises, allowing you to make long-term plans.
Which Option Is Right For You?
If you’re a homeowner with a decent amount of equity in your property, a cash-out refinance is likely the smarter move. It offers lower rates, consistent and predictable payments, and the ability to consolidate multiple debts into a single more manageable loan.
At AmeriHome, we’re here to help you explore your options and find the path that fits your goals. Be sure to contact one of our home loan experts to ask about current rates, and get your refinance journey started with the information you need. Call us at 877.715.9908 to learn more.
Looking to start saving today on your home loan? Let’s upgrade your mortgage and put money back in your wallet with a new Purchase or Refinance Loan.*
6 Money-Saving Tips To Start Today:
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Pay Off Your Loan Sooner Switch to shorter loan terms to save on interest.* |
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Lower Your Monthly Payment Refinance with longer terms, so more money stays in your wallet.* |
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Consolidate Debt Cash-out to reduce high-interest credit card debt. |
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Pay For Larger Expenses Invest in your home with updates that will yield a higher return should you decide to sell in the future. |
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Get Extra Savings After you have financed a home with us once, save up to $750 on all your future refinances and new home purchase loans with your AmeriWallet Benefits.** |
If you are interested in learning more about how a refinance or new home purchase loan can benefit you, just give us a call at 877.715.9908 or get your instant rate quote here.
Imagine The Possibilities With Your Better Home Loan!
*By refinancing, your total finance charge could be higher over the life of the loan.
**As a member of the AmeriHome family, borrowers are part of the AmeriWallet Rewards program. If you completed a home loan with us once, you will qualify for a $750 lender credit for all of your future refinances or home purchases done with AmeriHome, for any property you own. To qualify for this offer, you must have previously financed the purchase of a home or refinanced with AmeriHome. You have financed with AmeriHome when AmeriHome Mortgage Company, LLC appears on the previous Promissory Note for your loan, and you are listed as a borrower on the Note. Credits will be applied only if your loan closes with AmeriHome. This offer can not be combined with any other offers and is not applicable for FHA Streamline, or VA IRRRL Refinance transactions. Other restrictions may apply. Terms and conditions are subject to change. AmeriWallet Rewards program is subject to termination without notice.
