Can I Use a Credit Card to Pay Off a Credit Card?

A balance transfer is a financial tool designed to manage existing debt by moving it from one credit card to another. This process can consolidate debt and potentially reduce the overall interest paid on outstanding balances, especially when moving debt from cards with higher interest rates.

Understanding Balance Transfers

The new card issuer directly pays off the old credit card accounts, and the consolidated debt then resides on the new credit card. This allows individuals to combine multiple credit card balances into a single account, simplifying monthly payments. A primary motivation for a balance transfer is leveraging a lower introductory Annual Percentage Rate (APR) offered by the new card. By securing a promotional APR, which can sometimes be 0% for a set period, a larger portion of each payment can be applied directly to the principal balance, rather than accruing interest charges.

Initiating a Balance Transfer

Preparatory Aspect

Before initiating a balance transfer, it is necessary to collect the account numbers and current balances for all credit cards you intend to pay off. Credit card companies evaluate an applicant’s creditworthiness, looking for a good credit score and sufficient credit limit on the new card to cover the transferred debt. A strong credit profile increases the likelihood of approval for cards offering favorable introductory APRs.

Procedural Aspect

The application process can typically be completed online, over the phone, or in person at a bank branch. During the application, provide the gathered account details and specify the amounts to transfer. Once submitted, the approval process can take a few days to up to two weeks for the transfer to be fully processed. Continue making minimum payments on the original accounts until confirmation is received that the transfer is complete and the old balances are paid.

Key Financial Considerations

Balance transfers typically involve a fee, commonly ranging from 3% to 5% of the transferred amount, which is added to the new balance. While some offers waive this fee, it is generally a cost. The introductory APR is temporary and usually lasts between 6 to 21 months. After this promotional period, any remaining balance will revert to the card’s standard variable APR, which can be significantly higher.

A balance transfer can impact your credit utilization ratio, the amount of credit used compared to the total available credit. Consolidating debt onto a single card can initially increase utilization on that new card, but if managed effectively by reducing overall debt, it can positively influence credit scores over time. Applying for a new credit card results in a hard inquiry on a credit report, which may cause a temporary slight dip in your credit score. Maintaining timely payments and avoiding new debt on both the new and old cards are crucial to realizing the potential benefits of a balance transfer.

Alternatives for Debt Management

When a balance transfer is not feasible, several other strategies can help manage credit card debt. Debt consolidation loans combine multiple debts into a single loan with a fixed interest rate and repayment schedule, often at a lower overall interest rate than credit cards. These loans provide a predictable monthly payment and a clear payoff timeline. Another option is a debt management plan (DMP) offered through non-profit credit counseling agencies. In a DMP, the agency works with creditors to potentially lower interest rates and consolidate payments into a single monthly payment made to the agency.

Individuals can also employ self-managed repayment strategies like the debt snowball or debt avalanche methods. The debt snowball method prioritizes paying off the smallest balance first for motivational gains, while the debt avalanche method focuses on paying off debts with the highest interest rates first to minimize total interest paid.