Can You Use Credit Cards to Pay Off Other Credit Cards?
Learn how credit cards, particularly balance transfers, can help you manage and consolidate existing credit card debt, plus explore other repayment options.
Credit cards can be used to pay off other credit cards, primarily through a balance transfer. This process involves moving existing debt from one or more credit card accounts to a new credit card, often to take advantage of more favorable terms, such as a lower interest rate. This strategy aims to consolidate debt, reduce borrowing costs, and facilitate a more efficient repayment.
Understanding Balance Transfers
A balance transfer allows individuals to consolidate high-interest credit card debt onto a new credit card, frequently with a promotional 0% or low introductory Annual Percentage Rate (APR). This enables more of each payment to reduce the principal balance, rather than being consumed by interest charges. This is not a direct cash payment from one card to another; instead, the new credit card issuer pays off the outstanding balance on the old card(s) directly. The amount transferred, along with any associated fees, then becomes the balance on the new card.
This strategy can be beneficial for those carrying significant balances on credit cards with high interest rates. By shifting debt to a card with a temporary interest-free period, consumers gain an opportunity to accelerate their debt repayment. This financial maneuver offers a pathway to pay down debt more quickly and cost-effectively.
The Balance Transfer Process
To initiate a balance transfer, research and select a credit card that offers suitable terms, such as a favorable introductory APR period. After choosing a card, apply for the new credit card account. This application typically requires providing personal financial information and details about the existing credit card debt intended for transfer.
Once approved, provide the account numbers of the old credit cards and the specific amounts to be moved. The new card issuer then pays off the balances on the old accounts. This process can take a few weeks to complete. After the balance is moved, the old credit card account typically remains open with a zero balance. Avoid using it to prevent accumulating new debt.
Key Considerations Before Transferring
Most balance transfers typically incur a fee, commonly ranging from 3% to 5% of the transferred amount. This fee is added to the transferred balance, influencing the total amount owed and potentially offsetting some of the interest savings. For example, a $10,000 transfer with a 3% fee would add $300 to the new balance.
Understanding the introductory APR period is crucial, as these promotional rates are temporary. It is important to have a plan to pay off the transferred balance entirely before this period expires, as the interest rate will revert to a higher, standard APR afterward, often between 17% and 29%. Failing to pay off the balance within the promotional window means any remaining debt will begin to accrue interest at the higher rate, potentially eroding the benefits of the transfer.
Applying for a new credit card results in a hard inquiry on a credit report, which can cause a temporary, slight dip in a credit score. Responsible management of the new account and reduction of overall debt can positively impact the credit score over time, particularly by lowering credit utilization. It is not advisable to make new purchases on the balance transfer card, as these expenditures may not be subject to the promotional APR and could accrue interest immediately. Maintaining old credit card accounts open, even with a zero balance, can be beneficial for credit history, but avoid using them for new spending to prevent accumulating additional debt.
Alternative Debt Repayment Strategies
One option for managing credit card debt is a debt consolidation loan. This involves taking out a new loan to pay off multiple existing debts. These loans often offer a fixed repayment schedule and a lower interest rate than high-interest credit cards, simplifying payments into a single monthly installment.
A Debt Management Plan (DMP) is typically offered by non-profit credit counseling agencies. Under a DMP, the agency works with creditors to potentially lower interest rates and waive fees, allowing the individual to make one consolidated monthly payment to the agency, which then distributes the funds to creditors. This structured plan usually aims for debt repayment within three to five years.
Self-managed debt repayment methods include the debt snowball and debt avalanche strategies. The debt snowball method prioritizes paying off the smallest debt first, then rolling that payment amount into the next smallest debt. The debt avalanche method focuses on paying down the debt with the highest interest rate first, which can result in greater interest savings over time. Individuals can also negotiate directly with their credit card companies for a lower interest rate on existing accounts, which can reduce interest charges without opening new lines of credit.