Can You Pay Credit Cards With Credit Cards?

Individuals often wonder about using one credit card to pay off another. Generally, direct payments between credit cards are not permitted by card issuers. However, indirect strategies exist to transfer funds or access cash from one credit card to address debt on another. This article explores these indirect methods and their financial implications, providing clarity on how these processes function and what consumers should consider.

Balance Transfers

A balance transfer allows consumers to move outstanding debt from one or more credit card accounts to a new or existing credit card. This process typically involves applying for a new card designed for balance transfers, or utilizing an offer on an existing card. Once approved, the new card issuer pays off the designated balance on the old card, and the transferred amount, along with any associated fees, is added to the new card’s balance.

Many balance transfer cards offer an introductory 0% annual percentage rate (APR) for a promotional period, typically 6 to 21 months. This period provides an opportunity to pay down the principal debt without accruing interest, potentially saving significant finance charges. To initiate a transfer, provide the new card issuer with the old account number and the amount. Transfers can take a few days to several weeks, so continue making minimum payments on the old account until the transfer is complete.

Cash Advances

A cash advance provides access to physical cash from a credit card’s available credit limit. Cardholders can withdraw cash through an ATM using a PIN, at a bank teller, or using convenience checks. This cash can then be used to pay another credit card bill or for other immediate needs.

While a cash advance offers quick access to funds, it is an expensive way to borrow. Interest typically begins accruing immediately from the transaction date, without a grace period. There is also an upfront cash advance fee, commonly 3% to 5% of the amount, or a flat fee, whichever is greater, often with a minimum of $10. The annual percentage rate (APR) for cash advances is usually higher than for purchases, often ranging from 24% to 30%.

Reasons for Direct Payment Restrictions

Credit card networks and issuers prohibit direct payment of one credit card bill with another. This prevents a continuous cycle of accumulating debt, where an individual could endlessly shift balances without repayment. Allowing direct card-to-card payments would enable consumers to pay minimums indefinitely, hindering debt reduction and increasing default risk.

Direct card-to-card payments also pose significant fraud risks. Such a system could be exploited for money laundering or to create fictitious spending to earn rewards points without genuine transactions. Credit card companies manage risk by requiring payments from bank accounts, which are more stable and verifiable. This structure helps maintain financial system integrity and protects consumers and institutions from excessive risk and illicit activities.

Financial Considerations

When using indirect methods like balance transfers or cash advances to manage credit card debt, understanding the financial implications is important. Balance transfers typically involve a fee, which is added to the new balance. While introductory 0% APR periods offer substantial interest savings, this promotional rate is temporary, after which a variable APR applies. Cash advances carry immediate and significant costs, including an upfront transaction fee and a higher interest rate that begins accruing on the day of the transaction. For example, a $500 cash advance with a 5% fee would cost $25 in fees alone, with interest accruing on the entire $525 from day one. These costs can quickly escalate debt if not repaid promptly.

Both balance transfers and cash advances can impact credit scores. Applying for a new balance transfer card often results in a hard inquiry on a credit report, which can temporarily lower the score. Both methods can also increase a consumer’s credit utilization ratio, the amount of credit used compared to the total available credit. A high utilization ratio, generally above 30%, can negatively affect credit scores, as it suggests a higher reliance on borrowed funds. While a balance transfer can potentially improve credit by consolidating debt and lowering utilization on other cards, repeatedly opening new credit lines can be detrimental over time.