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

Paying off a credit card with another credit card is possible, though it involves specific financial mechanisms rather than a direct payment. This approach can be considered for managing existing credit obligations. Certain methods are designed for this purpose, and understanding them involves exploring how they function and their financial aspects.

Understanding Balance Transfers

A balance transfer involves moving debt from existing credit card accounts to a new or existing card, often to secure a lower interest rate. This process consolidates debt onto a single card, potentially simplifying monthly payments. The primary appeal of a balance transfer lies in promotional interest rates, which can be significantly lower than standard rates, sometimes even 0% for an introductory period.

Initiating a balance transfer requires applying for a new credit card designed for transfers. Issuers assess an applicant’s creditworthiness, with higher credit scores leading to better approval odds and more favorable terms. Once approved, the cardholder provides details of the original credit card accounts and the amounts to be transferred to the new issuer. The new credit card company then pays off the specified balances on the old cards, and the transferred amount, along with any associated fees, becomes the new balance on the transfer card. It is important to continue making minimum payments on the old accounts until confirmation that the transfer is complete, as this process can take a few days to several weeks.

Balance transfers come with specific costs, including a fee almost always charged, ranging from 3% to 5% of the amount transferred. For instance, transferring $1,000 might incur a fee of $30 to $50. The promotional interest rate, which can be as low as 0%, applies for a set duration, commonly between 6 and 21 months. After this introductory period concludes, any remaining balance will be subject to the card’s standard annual percentage rate (APR), which can be considerably higher. This reversion to a higher rate emphasizes the importance of paying down the transferred balance before the promotional period expires.

Understanding Cash Advances

A cash advance allows a credit card holder to obtain cash directly from their credit line, functioning as a short-term loan. Cash advances can be obtained through various methods, including withdrawing funds from an ATM using a credit card PIN, visiting a bank teller with the credit card and identification, or by cashing convenience checks provided by the card issuer.

The costs associated with cash advances are generally higher than those for standard credit card transactions. A cash advance fee is charged immediately upon withdrawal, which is typically a flat amount or a percentage of the advanced amount, whichever is greater. Common fees range from $10 or 3% to 6% of the transaction. For example, a $500 cash advance might incur a fee of $15 to $30.

Unlike standard purchases, cash advances usually do not have a grace period, meaning interest begins to accrue immediately from the transaction date. The annual percentage rate (APR) for cash advances is also typically higher than the APR for purchases, often ranging from 25% to 36% or more. This immediate interest accrual and higher rate make cash advances a more expensive way to access funds. The amount available for a cash advance is often a subset of the overall credit limit.

Impact on Your Credit Report

Engaging in financial actions such as balance transfers or cash advances can influence a credit report in several ways. When applying for a new credit card for a balance transfer, a “hard inquiry” is placed on the credit report. This inquiry occurs when a lender requests a credit report to evaluate creditworthiness. While a single hard inquiry usually results in a small, temporary dip in a credit score, often by fewer than five points, multiple inquiries in a short period can have a more pronounced effect. Hard inquiries remain on a credit report for up to two years, though their impact on credit scores generally diminishes after 12 months.

The amount of debt transferred or taken as a cash advance directly impacts the credit utilization ratio. This ratio, which compares the amount of credit used to the total available credit, is a significant factor in credit scoring models, accounting for approximately 30% of a FICO Score. A lower utilization ratio, generally below 30%, is viewed favorably by lenders. Increasing a credit card balance through a balance transfer or cash advance can raise this ratio, potentially lowering credit scores if not managed carefully.

Payment history is another component of a credit report, representing the largest factor in credit scoring, often accounting for 35% of a FICO Score. Making consistent on-time payments on the new balance transfer card or after a cash advance is important for maintaining a positive credit standing. Conversely, late or missed payments can significantly harm credit scores and remain on a credit report for several years.

The length of credit history is also considered in credit scoring. When a new credit card account is opened for a balance transfer, it can decrease the average age of all credit accounts. However, if an old account is closed after a balance transfer, it might reduce the total available credit and shorten the average age of accounts, potentially affecting the credit score. Maintaining older accounts, even with zero balances, can contribute positively to the length of credit history.