Nobody wants to carry debt on a credit card, which is why paying off your balance every month is ideal. But when life unexpectedly puts a damper on your cash flow, or when you need to make a big purchase without sufficient access to funds, what can you do?
You have four options if you aren’t able to pay a balance: carry an outstanding payment, take out a cash advance, make a balance transfer or get a personal loan. Let’s take a look at the ways people can use a credit card to pay off their other credit cards.
Can I pay my credit card bill off with another credit card?
Technically, it is possible to pay a credit card bill off using another credit card, although it can be a slippery slope to more debt if you’re not careful. There’s two ways of using a credit card to pay it off: taking out a cash advance and making a balance transfer.
What is a cash advance?
A cash advance is a service provided by credit card issuers that allows cardholders to withdraw cash out of an ATM or over the counter similar to a debit card. However, on a credit card, the maximum withdrawal amount for a cash advance typically equals the credit limit.
The cash from cash advances can technically be used to pay off credit card balances, but it’s unlikely you’ll find a situation where it’s worth pursuing. Cash advances will incur interest charges immediately. Advances also typically have much higher APRs than that of purchases. Additionally, there’ll likely be some kind of service fee for taking out the cash advance, which is also added to whatever fee the ATM charges.
What is a balance transfer?
A balance transfer involves transferring an existing balance of one card to another. The benefit of doing a balance transfer is you can move high interest debt to another card that has a lower APR. This can potentially save you money. Another reason why people use balance transfers is to raise their credit score. While applying for a balance transfer credit card (and most any credit card) will result in a hard inquiry, reducing your credit score a couple points. Balance transfer cards can also help you increase your credit and lower your credit utilization ratio, which can raise your credit score.
If you’re considering making a balance transfer, it typically only makes sense to do so if the account you’re paying off has a higher interest rate than the account you’re transferring the balance to. Some of the best balance transfer credit cards offer low to 0% introductory APR for as long as 18 months on eligible transfers. This means that you could potentially pay off debts or balances interest-free as long as they’re paid off before the promotional financing period expires.
There are still costs and limitations for using balance transfer credit cards. Nearly all credit cards charge a balance transfer fee of 3% or 5% of the amount transferred. Furthermore, your credit limit may be lower than what you’ll need. Finally, once the intro APR expires on balance transfer credit cards, the account starts accruing interest for any remaining balance.
Let’s look at an example to show the benefits to balance transfer credit cards. Let’s say you owe $2,000 at 20% interest on a credit card. Imagine if you were able to be approved for a balance transfer card with 0% introductory interest for 18 months. If you transferred your balance to this account, and over the next 18 months, you could make payments of $112 each month to eventually pay it off. You may also have transfer fees (3% or 5%) that have added $60 or $100 to the total. Comparatively, the cost of paying that balance on 20% interest would’ve been $129 per month and $2,331 total. Overall, you would have saved more than $300 by using a balance transfer.
As you can see, there’s a lot of potential in responsibly using balance transfer credit cards, and that’s why many people have had success using these cards to pay off their debt. Be sure to review the card agreement to look for things like balance transfer fees, intro or promotional APRs, the length of the promotional periods and the standard interest rates thereafter to find out how much you can save.
How to use a balance transfer credit card
Some credit cards offer more valuable balance transfers than others. Since credit card issuers don’t accept credit cards as a regular form of payment, you must perform a balance transfer to use a credit card to pay off another credit card. Here are the steps you’d take to initiate and utilize a balance transfer card.
- Apply: The first step is to apply for the best balance transfer credit card you can get. To avoid a revolving door of debt, credit card companies and banks often decline applications for people who have recently applied for many cards. As a result, you may have to go through a new issuer or bank when applying for a balance transfer card. Also, keep in mind that you can’t transfer balances between two cards issued by the same bank or credit union.
- Transfer the balance: Once approved, transfer your balance. It’s recommended to contact the issuer of your balance transfer card online or by phone. You’ll supply them with details about the debt you’re requesting to transfer.
- Wait: After the transfer is approved, the issuer usually pays off the balance on your old account directly. The new account will then show the balance from the old account plus any additional transfer fees.
- Pay off the debt: After the transfer is complete, it’s up to you to pay off the debt before it starts accruing interest on the new account. This is the step where, if done correctly, you could save yourself a lot of money. Ideally, you should pay off the entire debt before the card’s promotional financing period expires.
What to consider before using a balance transfer credit card
There’s a few things you’ll want to know before you apply and use your balance transfer credit card.
Transfer limits
The first thing to consider is that you won’t know your transfer limit until you’re approved for the card. A transfer limit is the amount you’ll be permitted to transfer daily and/or monthly. Frequently, you’ll see transfer limits range from 75% to 100% of the card’s credit limit. Applying with a credit score of around 670 should give you a good chance of being approved for a card with a large transfer limit. But as mentioned previously, the size of the limit depends on your finances and credit score.
Transfer and other fees
Fees will add to your pre-existing balance. Make sure you’re looking at all of the various fees when comparing credit cards and considering whether it should affect your decision. From time to time, there have been some credit cards on the market that include no balance transfer fees, but today, nearly all of them impose a 3% fee on the amount transferred.
Length of Promotional APRs
Some balance transfer cards include low or 0% APR on transfers for a limited time. If you use one of these balance transfer cards and don’t pay off the debt before the promotional deal ends, then you’ll still owe interest on the remaining balance. Interest free financing on balance transfer credit cards are a great way to save money, if you take advantage of it. The best course of action is to pay it off monthly. Do a quick calculation to gauge how much you’d need to pay per month before the promotional period ends and follow it until you’ve fully paid off your debt.
Alternatives to using a balance transfer card
Despite the appeal of a balance transfer card, there are a few reasons why using a balance transfer credit card might not work for you. For example, you may not be eligible for a limit large enough to transfer your debt from the old account to the new one. Balance transfers are just one way to deal with debt. Let’s discuss the others.
Personal loans
For an alternative to using a credit card to pay off a credit card, consider asking for a personal loan, whether through a bank, from a retirement account, even from friends and family. In general, you may be able to get a personal loan at a lower interest rate than that of credit cards. However, the rates on most personal loans are dependent on your financial and credit situation. Since personal loans are usually lent to you as a lump sum as opposed to multiple installments, you’d be able to pay off the debt instantly. Then, you’d make monthly payments to the lender over an agreed upon period.
Cash advances
You may be able to take out cash advances to help pay off debt on another credit card, but it will cost you much more money in interest and fees. Besides cash advance fees and high interest rates, cash advances don’t have a grace period. This means that the interest starts to accrue as soon as you take out a cash advance. If you’re going through with a cash advance, it’s best to borrow as little as possible and pay it back as fast as you can.
Delinquency and Default
Maybe you’ve decided not to go through with any of these options. If you choose to ride out an outstanding balance for 30 days, your account becomes delinquent, which will severely hurt your credit. Six months after that, if the minimum balance is not paid, your account may default. For traditional cards, the next step would be that the account gets sent to a collection agency, which could stay on your credit report and ruin your credit score for up to seven years.
You should take action to avoid a default. Be proactive and use the resources available to you. Consider contacting your creditor to set up a different payment plan or reaching out to a credit counseling company to help you manage the debt.