How to Use One Credit Card to Pay Another

Using one credit card to pay another involves navigating specific financial mechanisms. While the concept might seem straightforward, the actual processes are distinct and carry varying implications for a cardholder’s financial standing. Understanding these methods and their associated costs helps individuals make informed choices about their credit obligations.

Understanding Balance Transfers

A balance transfer allows an individual to move debt from one or more credit cards to a new or existing credit card account. This strategy is often employed to consolidate multiple debts into a single payment or to benefit from a lower interest rate, particularly during an introductory promotional period. Balance transfer offers commonly feature a 0% introductory Annual Percentage Rate (APR) for a specific duration, which can range from six to 21 months. After this introductory period concludes, the interest rate typically reverts to a higher, variable rate.

Most balance transfers involve a fee, usually calculated as a percentage of the transferred amount. This fee commonly falls between 3% and 5% of the total balance, with a minimum charge often around $10. For instance, transferring $1,000 with a 3% fee would add $30 to the new balance. To qualify for a balance transfer card, a strong credit score is typically required, often a FICO Score of 670 or higher. Card issuers assess creditworthiness to determine eligibility and the credit limit offered.

Executing a Balance Transfer

Initiating a balance transfer typically begins with applying for a new credit card that offers balance transfer promotions. During the application process, individuals will need to provide account numbers and outstanding balances of the credit cards they intend to pay off. Upon approval, the new card issuer generally handles the transfer directly, sending payments to the old accounts. This process avoids the need for the cardholder to personally manage the funds.

The time it takes for a balance transfer to complete can vary, ranging from a few days to several weeks, with many transfers finalizing within five to 21 days. It is important to continue making minimum payments on the original credit card accounts until the transfer is fully reflected and the old balance is zeroed out. Cardholders should monitor both the new and old account statements to confirm the transfer’s completion and ensure all previous balances have been appropriately settled.

Understanding Cash Advances

A cash advance represents a loan of cash obtained from a credit card’s available credit limit, fundamentally differing from standard credit card purchases. This transaction provides immediate funds but comes with distinct and generally higher costs. Credit card companies typically impose a cash advance fee, which is often 3% to 5% of the amount borrowed, or a flat fee of around $10, whichever is greater. This fee is charged at the time of the transaction.

A notable characteristic of cash advances is the absence of a grace period for interest accrual; interest begins to accumulate immediately from the transaction date. This differs from purchases, which usually have a grace period before interest charges apply. Furthermore, the Annual Percentage Rate (APR) for cash advances is typically higher than the APR for standard purchases, often ranging from 25% to 30%. The amount available for a cash advance is usually a smaller portion of the overall credit limit, often restricted to 20% to 50% of the total credit line.

Using a Cash Advance to Pay Another Card

Obtaining a cash advance involves several methods, such as withdrawing cash from an ATM using a credit card PIN, cashing a convenience check provided by the card issuer, or requesting funds in person at a bank branch. Once the cash is obtained, it can then be used to make a payment on another credit card account.

This method is generally considered an expensive approach to debt management. The combination of upfront fees and immediate, higher interest rates makes it a costly option. The lack of a grace period means that every day the cash advance balance remains unpaid, additional interest charges accrue, increasing the overall cost of borrowing.

Other Approaches to Managing Credit Card Debt

Individuals seeking to manage credit card debt have several alternative strategies. Debt consolidation loans, typically personal loans, allow a borrower to combine multiple unsecured debts into a single loan with a fixed interest rate and a set repayment schedule. This approach can simplify payments and potentially reduce the overall interest paid, depending on the loan terms.

Another option is a debt management plan (DMP), often facilitated by non-profit credit counseling agencies. Under a DMP, the agency works with creditors to negotiate lower interest rates and fees, allowing the cardholder to make one consolidated monthly payment to the agency, which then distributes the funds to creditors. These plans typically aim for debt repayment within three to five years.

Budgeting strategies can also be effective in reducing debt through disciplined direct payments. These include the debt snowball method, which focuses on paying off the smallest balances first, and the debt avalanche method, which prioritizes debts with the highest interest rates.