Can You Pay One Credit Card with Another? The Definitive Guide

Yes, you can pay one credit card with another, but the how and why are nuanced, and often come with caveats. The most common methods are through a balance transfer or cash advance. Understanding the intricacies of each approach – fees, interest rates, and potential impact on your credit score – is absolutely vital before proceeding.

Methods to Pay One Credit Card with Another

The allure of using one credit card to pay off another is understandable. It promises a temporary reprieve from high interest rates or overwhelming debt. However, it’s essential to approach this with a clear understanding of the mechanics involved. Here are the two primary methods:

Balance Transfers: Strategic Debt Shuffling

A balance transfer is the most strategic and often the most financially sound method. It involves transferring the balance from a high-interest credit card to a new or existing credit card with a lower interest rate, preferably a 0% introductory APR.

Here’s how it typically works:

1. Find a Balance Transfer Offer: Banks frequently offer promotional periods with 0% APR on balance transfers to attract new customers. Carefully examine the terms: the duration of the introductory period, the balance transfer fee (usually a percentage of the transferred amount, often between 3% and 5%), and the APR that will apply after the introductory period ends.
2. Apply for the Card: If you’re applying for a new card, you’ll need to go through the standard credit application process. Your credit score will significantly influence your approval odds and the terms you receive.
3. Request the Transfer: Once approved, you’ll instruct the bank to transfer the balance from your existing credit card to your new one. You’ll need to provide details like the account number and the outstanding balance of the card you want to pay off.
4. Monitor the Transfer: It usually takes a few days to a couple of weeks for the transfer to complete. During this time, continue making minimum payments on your old card until you confirm that the balance has been successfully transferred.
5. Pay it Down: The key to making a balance transfer work is to aggressively pay down the transferred balance before the introductory APR expires. Otherwise, you could end up with an even higher interest rate than you had before.

The Pros of Balance Transfers:

• Lower Interest Rates: This is the primary benefit. A 0% APR introductory period can save you hundreds or even thousands of dollars in interest charges.
• Simplified Payments: Consolidating multiple debts into a single card can make managing your finances easier.

The Cons of Balance Transfers:

• Balance Transfer Fees: These fees can eat into the savings from a lower interest rate, especially if you’re transferring a small amount.
• Temporary Relief: The lower rate is usually temporary. Failing to pay off the balance before the introductory period ends can result in a much higher APR.
• Credit Score Impact: Applying for a new credit card can temporarily lower your credit score due to a hard inquiry. Also, opening a new account lowers your average account age, which accounts for 15% of your FICO score.
• Available Credit: Transferring a balance reduces the available credit on your new card, potentially impacting your credit utilization ratio (the amount of credit you’re using versus your total available credit).

Cash Advances: A Risky Maneuver

A cash advance involves using your credit card to obtain cash. While you can use this cash to pay off another credit card, it’s generally not recommended due to the high costs involved.

Here’s why cash advances are generally a bad idea:

• High APR: Cash advance APRs are typically significantly higher than purchase APRs.
• No Grace Period: Unlike purchases, interest accrues on cash advances from the moment you take the money out. There’s no grace period to avoid interest charges by paying the balance in full.
• Cash Advance Fees: Credit card companies charge a fee for cash advances, usually a percentage of the amount borrowed or a flat fee, whichever is greater.
• Impact on Credit Score: While the act of taking a cash advance itself won’t directly hurt your credit score, the high credit utilization resulting from it will.

Why You Should Avoid Cash Advances:

Simply put, cash advances are almost always the most expensive way to borrow money. Using them to pay off another credit card is essentially trading one high-interest debt for another, possibly even higher-interest debt, plus additional fees. It’s rarely a financially sound decision.

Alternatives to Paying One Credit Card with Another

Before resorting to balance transfers or cash advances, consider these alternatives:

• Debt Snowball or Avalanche Method: Focus on paying off the smallest debt first (snowball) or the debt with the highest interest rate first (avalanche).
• Debt Management Plan (DMP): Work with a credit counseling agency to create a DMP, which may involve lower interest rates and consolidated payments.
• Personal Loan: A personal loan may offer a lower interest rate than your credit cards, allowing you to consolidate your debt into a single, more manageable payment.
• Negotiate with Creditors: Contact your credit card companies and try to negotiate a lower interest rate or a payment plan.

FAQs: Deep Dive into Paying Credit Cards with Other Credit Cards

Here are some frequently asked questions to further clarify the nuances of paying one credit card with another:

1. Will paying one credit card with another hurt my credit score?

It depends. A balance transfer can have a temporary negative impact due to the credit inquiry from applying for a new card. However, if done strategically and you maintain a low credit utilization ratio, it can ultimately improve your credit score by lowering your overall debt and interest payments. A cash advance will almost certainly hurt your score because you pay a steep fee.

2. How long does a balance transfer typically take?

Balance transfers usually take 7 to 14 business days to process. It’s crucial to continue making minimum payments on the original card until you confirm the transfer is complete.

3. What happens if my balance transfer is rejected?

If your balance transfer is rejected, you’ll still be responsible for the debt on your original credit card. You’ll also need to re-evaluate why it was rejected. You may consider improving your credit, or you may simply need to attempt the transfer with a lower amount.

4. Can I transfer a balance between cards from the same bank?

Generally, no. Most banks don’t allow balance transfers between cards issued by the same institution. This is to prevent customers from simply shifting debt around within the same company without actually addressing the underlying financial issues.

5. What credit score is needed for a balance transfer card?

The better your credit score, the better your chances of approval and the more favorable the terms you’ll receive. Aim for a score of 670 or higher to increase your chances of getting approved for a balance transfer card with a 0% introductory APR.

6. What are the tax implications of a balance transfer?

Generally, balance transfers are not considered taxable events. However, if the credit card company forgives a portion of your debt as part of a settlement, that forgiven amount may be considered taxable income. It is best to consult a tax professional for personalized advice.

7. What is a “convenience check” and can I use it for a balance transfer?

A convenience check is a check issued by your credit card company that you can use to make purchases or pay bills. Some credit card companies offer convenience checks as part of a balance transfer offer, allowing you to write a check to pay off your other credit card. These should be treated with caution, as they often come with high fees and interest rates similar to cash advances.

8. Can I transfer more than one credit card balance to a single card?

Yes, you can transfer multiple balances to a single card, as long as the total transferred amount doesn’t exceed your new card’s credit limit. Be mindful of the balance transfer fees and make sure you can realistically pay off the total balance before the introductory period ends.

9. What is a credit utilization ratio and why is it important?

Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. It’s a significant factor in your credit score, accounting for 30% of it. Aim to keep your credit utilization ratio below 30% to maintain a healthy credit score.

10. Are there any alternatives to credit cards for debt consolidation?

Yes, you can consider options like personal loans, home equity loans, or debt management plans. These options may offer lower interest rates and more structured repayment plans than credit cards.

11. What is a debt management plan (DMP)?

A debt management plan (DMP) is a program offered by credit counseling agencies. You work with a counselor to create a budget and repayment plan, and the agency negotiates with your creditors to lower interest rates and waive fees.

12. What should I do if I’m struggling to make credit card payments?

If you’re struggling to make credit card payments, contact your credit card company immediately. They may be willing to offer a hardship program or a payment plan to help you get back on track. Also, seek assistance from a non-profit credit counseling agency for personalized advice and guidance.

By carefully evaluating your options and understanding the risks and benefits involved, you can make an informed decision about whether paying one credit card with another is the right strategy for you. Remember, responsible credit management is the key to long-term financial health.