Can I Pay Off a Credit Card With a Credit Card?

It is common to wonder if one credit card can be used to pay off another, particularly when navigating existing debt. While it is possible to transfer balances between credit cards, specific methods and important financial considerations are involved. Understanding these approaches is essential for anyone considering such a strategy for debt management.

Using Balance Transfers

A balance transfer involves moving debt from one credit card to another, typically to consolidate balances or to take advantage of a lower interest rate offer. This process usually begins with applying for a new credit card that offers balance transfer promotions. Once approved, the new card issuer facilitates the transfer by paying off the old credit card, and the transferred amount then becomes part of the balance on the new card.

Balance transfers typically incur a fee, commonly ranging from 3% to 5% of the transferred amount. For example, transferring a $10,000 balance at a 3% fee would add $300 to the new card’s balance. Many balance transfer offers feature an introductory annual percentage rate (APR) of 0% for a promotional period, often lasting between 12 and 21 months. After this introductory period concludes, the interest rate reverts to a standard variable APR, which can range from 18% to 29% or higher.

Eligibility for favorable balance transfer offers generally requires a good to excellent credit score, often a FICO Score of 670 or higher. Issuers assess creditworthiness to determine approval and the terms of the promotional period. Most credit card companies do not permit balance transfers between two cards issued by the same financial institution, as balance transfers are primarily designed to attract new customers.

Using Cash Advances

A cash advance is a short-term loan obtained directly from a credit card’s available credit limit. This method allows cardholders to withdraw cash, often through an ATM with a Personal Identification Number (PIN), by presenting their card at a bank, or by using convenience checks provided by the issuer. The amount borrowed is then added to the credit card balance, similar to a purchase.

Cash advances are a significantly more expensive way to access funds compared to standard credit card purchases. They typically come with a cash advance fee, which is often 3% to 5% of the amount advanced, or a flat fee such as $10, whichever is greater. For instance, a $500 cash advance could incur a $25 fee at a 5% rate.

Interest begins to accrue immediately from the transaction date, without a grace period. The APR for cash advances is also generally much higher than the APR for regular purchases, often ranging from 25% to 35%. Due to these high fees and immediate, elevated interest accrual, using a cash advance to pay off another credit card is almost always a costly and inefficient strategy.

Understanding the Financial Implications

Using one credit card to pay off another carries several financial implications. When applying for a new credit card for a balance transfer, a hard inquiry is typically made on your credit report. This inquiry can cause a temporary, slight decrease in your credit score, usually by a few points, though its impact often diminishes within a few months.

Opening a new credit account can also reduce the average age of your credit accounts, which is a factor in credit scoring models. While a balance transfer might lower your credit utilization ratio on the original card, the overall credit utilization across all accounts is a significant factor, accounting for up to 30% of a FICO Score. Maintaining a credit utilization ratio below 30% is generally recommended for a positive impact on credit scores.

Utilizing one credit card to pay another does not eliminate the underlying debt; it merely shifts it. If spending continues on either the new card or other existing accounts, there is a risk of accumulating more debt, potentially leading to a larger overall burden. A thorough review of the terms and conditions for any new credit card offer is essential, especially regarding promotional periods, fees, and the post-promotional APR, to avoid unexpected costs or further financial strain.

Exploring Other Debt Management Strategies

Beyond using one credit card to pay off another, various debt management strategies address outstanding balances. One option is a debt consolidation loan, which combines multiple debts into a single loan, often with a lower interest rate and a fixed repayment schedule. This simplifies payments and can potentially reduce the total interest paid over time.

Another strategy involves engaging with a credit counseling agency to establish a debt management plan (DMP). Under a DMP, the agency works with creditors to potentially lower interest rates and consolidate multiple unsecured debts into a single, more manageable monthly payment. These plans are not loans and typically aim for debt repayment within three to five years.

Budgeting and spending adjustments are fundamental to any debt reduction effort. Creating a detailed budget helps track income and expenses, identifying areas where spending can be reduced to free up funds for debt repayment. This proactive approach addresses the root causes of debt accumulation. Additionally, direct payment strategies like the debt snowball or debt avalanche methods can be effective. The debt snowball method prioritizes paying off the smallest debts first for motivational wins, while the debt avalanche method focuses on debts with the highest interest rates to save more money on interest over time.