Can You Pay off a Credit Card With Another Credit Card?

Most adults (82% in 2023) have at least one credit card. We use them to shop for groceries, make online purchases, and build our credit profiles. Some of us may even use them to pay rent or utilities.

Less than 10% of Americans use cash to pay for purchases, while 62.6% of retail and online purchases are made using credit cards.

With such a high prevalence of credit card use, is it possible (or even wise?) to pay off one credit card with another credit card?

Paying off one credit card with another card is possible through methods like balance transfers,  but it’s crucial to understand the costs and risks involved. Ensure you read all terms and conditions of your credit card carefully and have a solid plan for managing your debt.

We will go over some of the most common methods consumers can use their credit cards to pay off another credit card.

How Do Credit Card Payments Work?

Credit card companies apply payments to different types of balances (e.g., purchases, cash advances, balance transfers) based on a hierarchy determined by federal regulations and the card issuer’s policies.

First, let’s discuss the types of balances, and then I’ll explain the order in which your payment is applied to each balance – also known as the hierarchy of payments.

Types of balances:

• Purchases: Standard purchases usually have the lowest interest rates compared to other types of balances like cash advances or balance transfers.
• Cash Advances: Cash advances often have higher interest rates and start accruing interest immediately, without a grace period.
• Balance Transfers: Balance transfers have promotional interest rates for a specified period. Once this period ends, the rate typically increases substantially.

When a cardholder makes a payment, the minimum payment due is typically applied first. This amount often covers interest charges, fees, and a portion of the principal balance.

After covering the minimum payment, any remaining payment amount is generally applied first to the balances with the highest interest rates. This method helps minimize the total interest paid by the cardholder over time.

Example of Payment Allocation

Suppose a cardholder has the following balances on their credit card:

• $1,000 in purchases at 15% APR
• $500 in cash advances at 25% APR
• $300 in balance transfers for 0% APR promotional rate

If the cardholder makes a payment of $600 and the minimum payment due is $50, the payment would be allocated as follows:

Minimum Payment: $50 is applied to the minimum payment, covering interest, fees, and part of the principal.

Remaining Payment: The remaining $550 is applied to the balance with the highest interest rate first. In this case, it would go towards the $500 cash advance balance (25% APR). Any leftover amount after the cash advance balance is paid off would then go towards the next highest interest rate balance. If $50 remains after paying off the cash advance, it will be applied to the purchase balance (15% APR).

Federal Regulations

The Credit Card Act of 2009 mandates that credit card payments above the minimum payment be applied first to the balance with the highest interest rate. This regulation aims to help consumers pay down their higher-interest debt more quickly, reducing the total interest paid over time.

Important Considerations

• Fees: Merchants pay transaction fees to the acquiring bank for processing payments. These fees can include interchange fees (paid to the issuing bank) and assessment fees (paid to the card network).
• Security: Payment information is encrypted during transmission to protect against fraud. Card networks and banks use security measures such as EMV chips, tokenization, and 3D Secure for online transactions.
• Interest and Fees for Cardholders: Cardholders should be aware of potential interest charges on unpaid balances, annual fees, late payment fees, and other charges associated with their credit card account.

Methods to Pay Off a Credit Card with Another Credit Card

Paying off a credit card with another credit card directly is not typically possible through standard payment methods. However, there are several methods to achieve this indirectly. The two most common ones are balance transfers and cash advances.

Balance Transfer

Overview: A balance transfer is a financial strategy where you move the outstanding balance from one credit card to another, typically to take advantage of a lower interest rate. This is often done to reduce the amount of interest you pay on the debt, allowing you to pay it off more quickly and with less expense. Many credit card companies offer promotional balance transfer rates, such as 0% APR for a certain period (usually 6-18 months). However, there may be a balance transfer fee, typically ranging from 3%-5% of the amount transferred. It’s important to pay off the transferred balance within the promotional period to avoid higher interest rates that may apply afterward.

How It Works:

• Apply for a credit card that offers a balance transfer feature, ideally with a promotional 0% interest rate.
• Request the balance transfer from the new card issuer, providing details of the credit card balance you wish to transfer.
• The new card issuer pays off the balance on the old card, and the transferred amount is now owed on the new card.

Considerations:

• Balance transfer fees typically range from 3%-5%of the transferred amount.
• Ensure you can pay off the transferred balance within the promotional period to avoid higher interest rates later.

Cash Advance

Overview: A cash advance is a service provided by credit card issuers that allows cardholders to withdraw cash from an ATM or a bank. This is essentially borrowing money against your credit card’s credit limit. Cash advances typically come with high fees and interest rates, which start accruing immediately without a grace period. Additionally, there may be ATM or bank fees associated with the transaction. Due to these high costs, cash advances are generally considered a last resort for accessing cash.

How It Works:

• Use your credit card to withdraw cash from an ATM or bank.
• Deposit the money into your bank account and use those funds to pay off the other credit card.

Considerations:

• Cash advances usually come with high fees and higher interest rates, which start accruing immediately.
• There may be limits on how much you can withdraw as a cash advance.

Considerations and Risks

Paying off a credit card with another credit card will involve risk if you cannot make timely payments on the new credit card balance. Be aware of any fees associated with balance transfers, cash advances, or using convenience checks.

Understand the interest rates for cash advances and balance transfers after any promotional periods. Keep in mind that applying for new credit cards or taking significant advances can impact your credit score. And remember that moving debt around doesn’t eliminate it; ensure you have a plan to pay it off.

By carefully considering these methods and their associated costs, you can strategically use one credit card to help pay off another, potentially reducing your overall interest payments and managing your debt more effectively.

Alternatives to Using Another Credit Card

Using credit cards to pay off credit card debt will not be a viable option for many consumers. Fortunately, there are several alternative methods for reducing your debt burden. Here are some of your options.

Debt Management Plan (DMP)

A debt management plan is a structured repayment plan set up by a nonprofit credit counseling agency to help you repay your debts. Nonprofit agencies have agreements with credit card companies to reduce interest rates to an average of 7%, which makes it possible to pay off the debt in 3-5 years. You will make a monthly payment to the agency, which then distributes the funds to your creditors in agreed upon terms.

Debt Consolidation Loan

A debt consolidation loan involves taking out a new loan to pay off multiple debts, including credit card balances. This consolidates your debt into one monthly payment. You can apply for a debt consolidation loan through a bank, credit union, or online lender, and use the loan funds to pay off your credit card balances. You then repay the loan in fixed monthly payments, typically at a far lower interest rate than credit cards.

Before taking out a debt consolidation loan, make sure the interest rate is lower than your current credit card rates and check for any origination fees or prepayment penalties.

Credit Card Forgiveness

Credit card forgiveness is an agreement with your card company to pay 50%-60% of the debt owed in 36 fixed payments. There is no negotiating involved. If you miss any of the 36 payments, this program is canceled. There are qualifying standards, the most prominent one being that you haven’t made a payment on your credit card bill in 120-180 days. This program is offered by a limited number of nonprofit credit counseling agencies and accepted by a limited number of creditors. Your credit score will take a hit because you didn’t pay the full amount owed, but if you make on-time payments, it will recover in a year or two.

Debt Settlement

Debt settlement involves negotiating with creditors to settle your debt for less than the total amount owed. You can deal directly with creditors or hire a debt settlement company to do it for you. Debt settlement will significantly impact your credit score in a negative way, and creditors are not obligated to settle, which can result in lengthy negotiations. Also, you will owe income tax on any forgiven debt over $600.

Effective Credit Card Management

Understanding the methods, risks, and alternatives to using one credit card to pay off another is crucial for effective debt management and long-term financial health. By gaining a clear insight into these factors, you can make informed decisions that align with your financial goals and help you avoid common pitfalls. Before using a credit card to pay off another, here are some things to consider:

• Interest Rates and Fees: Different methods have varying interest rates and fees. By understanding these, you can choose the most cost-effective strategy, and avoid high fees that negate the benefits of transferring or consolidating debt.
• Credit Score Impact: Opening new credit accounts or using a significant portion of your available credit can hurt your credit score. Knowing this helps you make informed decisions that protect your credit health in the long term.
• Repayment Plans: Assessing your ability to stick to a repayment plan is critical. For example, failing to pay off a balance transfer within the promotional period can lead to high interest charges, potentially worsening your economic situation.
• Debt Cycle: Simply shifting debt from one card to another without addressing underlying spending habits can lead to a debt cycle that’s hard to break. Plan to implement sustainable financial practices to avoid falling into this pitfall.

Utilize reputable resources such as nonprofit credit counseling agencies, online financial tools, and educational materials. These resources can offer valuable insights and support for managing your debt effectively.

Agencies like the National Foundation for Credit Counseling (NFCC) provide access to certified credit counselors who can help you create a debt management plan, negotiate with creditors, and provide financial education.

Continue to educate yourself on financial management topics, including budgeting, saving, and investing. Knowledge is a powerful tool in achieving economic stability and independence. These steps can empower you to regain control over your finances, reduce debt, and work towards a more secure financial future.

Don’t hesitate to seek the help and resources you need—reach out to a financial advisor or explore debt management options today. Your financial well-being is worth the investment.