How to Refinance Unsecured Debts

Unsecured debts are those not backed by any collateral. The most common type of unsecured debt is credit card debt. However, personal loans and small lines of credit can be unsecured as well. Refinancing unsecured debt can be a risky proposition due to fees. However, refinancing into a lower-interest account can be financially beneficial.

Attempt to secure a lower rate and payment with your current lender before refinancing. Simply ask your creditor for a lower rate--you may just get it. Creditors are in fierce competition to acquire and retain consumers and by mentioning that you are considering refinancing, you may get the rate you're looking for.

Determine the interest rate on your current account. Also, find out if the rate can adjust. When you refinance, you'll want to secure a fixed-interest account. You can accomplish these usually by looking at a current statement, but you can also refer these questions to the customer service department.

Pull a copy of your credit report. See Resources for a free copy of your report. You will also want to pay for a copy of your FICO score. This three-digit number represents your creditworthiness. Any score above 720 is excellent; any score below 600 is poor. Consider refinancing only if you have good to excellent credit.

Begin researching rates and programs. It's best to keep unsecured debt as unsecured debt. While rates on unsecured refinances are higher than secured programs, putting your credit card debt against your house is risky. Look at local banks and credit unions for their rates on personal loans and lines of credit.

Apply to two to three lenders. Excessive inquiries--more than six in a six-month period--will cause your score to go down. Make sure to review all offers side-by-side prior to making a decision. The best programs will have low interest rates (lower than your existing rate), a fixed rate, low fees, a closed-end structure. Closed-end loans, like auto loans, have a set monthly payment and expiration date.

Review the final paperwork for accuracy on the loan you choose. Make sure no terms have changed.


  • Be very careful if you decide to refinance your unsecured debt into secured debt. By collateralizing the debt, you put the asset used as collateral at risk.