AÂ credit cardÂ is designed to help you in an emergency, to give you options when there are none. But what happens if you have a maxed-outÂ credit cardÂ in one hand and an empty card in the other, can you use oneÂ credit cardÂ to pay off the other and, more importantly, should you?
TheÂ short answerÂ is yes and… probably not. However, there is a better option available and it’s actually one of the best ways to clear aÂ credit cardÂ balance.
Options for PayingÂ Credit CardÂ BillÂ with Another Card
There are three ways you can clear aÂ credit cardÂ billÂ using anotherÂ credit card. The first two options are nothing short of terrible and are likely to cause more issues than they fix. The third is really the only one you should consider, but before we get to that option, let’s get the bad ones out of the way.
Cash AdvanceÂ andÂ Convenience Checks
Credit cardÂ companiesÂ won’t let you pay off oneÂ credit cardÂ with another, at least not in that way. However, you can get around this by usingÂ convenience checksÂ or aÂ cash advance. The former is sent by your creditor for you to make a deposit into yourÂ checking account; the latter is used to withdraw cash.Â
Technically, you can get cash from yourÂ credit card, put this into yourÂ checkingÂ account, and then use that money to clear yourÂ credit cardÂ debt.
âBut, as mentioned above, this is aÂ bad idea.Â Cash advanceÂ feesÂ can be enormous and if you’re moving large sums of money and being charged a high fee for doing so, you could be seriously out of pocket. Luckily, there is aÂ better alternative.
Using aÂ Balance Transfer
AÂ balance transferÂ is the act of moving aÂ credit cardÂ balanceÂ from one or more cards to another. There are specificÂ balance transferÂ credit cardsÂ designed to help you with this process and all come with anÂ introductory periodÂ where youâre offered 0% APR for the first 6, 12 or 18 months.Â
Once this period ends, you may be charged aÂ higherÂ interestÂ rate, but if you can clear your balance during that intro period those extraÂ interest chargesÂ won’t matter.
HowÂ Balance TransfersÂ Work
Balance transferÂ credit cardsÂ are used byÂ credit cardÂ companiesÂ to attract new users. These introductory offers convince you to move your balance to aÂ newÂ credit cardÂ company, after which they hope you will continue to make purchases, accumulate debt, and remain with them for years to come.
MostÂ balance transferÂ credit cardsÂ charge a fee for moving the money across. This fee is often levied as 3% or 5% of the total balance, which equates to $300 or $500 for a balance of $10,000.Â
That sounds like a lot, but it also comes with a 0% APR, which means yourÂ monthly paymentsÂ will go exclusively towards the principal, paying it off quickly.
Usually, the majority of yourÂ minimum paymentÂ goes towards interest, which means your balance will decrease slightly with each passing month. By removing this interest obligation from the equation, all your payment will go towards the balance, thus clearing it quickly and cheaply.Â
These cards can save you thousands of dollars if used properly, but it’s important not to swap an older problem for a new one; not to create the same issues on yourÂ new cardÂ that you had on your old card.
Use aÂ balance transferÂ offerÂ to remove the balance entirely. Meet theÂ minimum payment, pay more where possible, and ensure that when theÂ introductory periodÂ ends, there is no balance on which interest can build. Once you reach this point, you’ve wiped the slate clean and can start afresh, makingÂ credit cardÂ paymentsÂ on time and clearing your balance in full every month.
ManyÂ balance transferÂ credit cardÂ offersÂ come with a $0Â annual feeÂ and don’t charge you for foreign transactions. However, they typically won’t provide you with the sort ofÂ cashbackÂ rewards you can get from otherÂ credit cards.
Paying Off aÂ Credit CardÂ with Bad Credit
If you haveÂ bad credit, you may struggle to find aÂ balance transferÂ cardÂ with a high enoughÂ credit limit. These cards, like all goodÂ credit cards, require a relatively cleanÂ credit report, preferably with aÂ credit scoreÂ above 670.
As long as yourÂ credit scoreÂ is above 580, you’ll still options, but those options may be limited toÂ high-interest ratesÂ and unfavorable terms. In such cases, there are a few things you can to clear your credit debt:
1. Improve YourÂ Credit Score
AÂ balance transferÂ feeÂ is the only real downside to aÂ balance transferÂ credit card, so it’s worth putting the time and effort in to get one of these cards. It may only take a few months to improve yourÂ credit scoreÂ to a point where you can apply for one of these cards.
Take a look at theÂ bestÂ balance transferÂ credit cardsÂ (Discover, Visa, Chase) to give you an idea of the sort of card that can help you and the type ofÂ credit scoreÂ you need. Once you have that target in mind, you can work towards achieving it.
2.Â Credit Counseling
A credit counselor can look at your current financial situation and determine the best course of action going forward. These services are offered by manyÂ credit counselingÂ agencies and you typically only need to pay a token amount for a short 30- or 60-minute session.
3. Debt Consolidation
Debt consolidation is very similar to aÂ balance transfer, as it swaps one or more smaller debts for a big one. The difference is that it pays theÂ credit cardÂ balancesÂ off with a single loan, and you then focus on repaying that loan.
Typically, debt consolidation extends the length of your loan with a view to reducing theÂ monthly paymentsÂ but increasing the total balance. This can help to make yourÂ credit cardÂ debtÂ more manageable and it will also improve your debt-to-income ratio.
4. Debt Settlement
Debt settlement is one of the cheapest ways to clearÂ credit cardÂ debt. It begins when a debt specialist requests that you stop meeting all monthly payments and then move your money to a separateÂ bank account.Â
The debt specialist will then use thisÂ bank accountÂ to negotiate with your creditors, waiting until they desperate to settle and then offering them a greatly reduced settlement sum.
Just bear in mind that when you miss aÂ minimumÂ monthly payment, you run the risk of your account defaulting, which will hurt yourÂ credit score.
Can you Pay a Credit Card with a Credit Card? is a post from Pocket Your Dollars.