Chris Bridges, Founder and CEO, VITAL Card Inc.,
Wondering whether you can pay off one credit card bill with another credit card? Well, the answer is yes and no. While you technically can pay your credit card with another credit card, this is a high-risk factor to your credit, because it transfers debt from one credit account to another.
Why is paying one credit card with another credit card a risk to my credit score?
Generally, you can’t pay off your monthly statement balance on one card using another credit card. Most card companies require the statement balance to be paid in either cheque, electronic balance transfer, or money order.
While there are two ways to pay off your outstanding debt using another credit card, it would be best not to rely on these methods because of the additional fees you’d have to pay. Nonetheless, this article tells you about those two methods and gives you an alternative to paying back your credit card bill without using a credit card.
What Happens If I Pay My Card Bill Using Another Credit Card?
There are two ways you can use a credit card to pay off the statement balance on another card. Let’s break down these methods and look at their pros and cons.
As the name suggests, a balance transfer is when you transfer the statement balance from one credit card to another. This is only sensible when you move the balance to a new card with an introductory 0% APR offer.
Applying for a zero-interest card allows you to transfer the entire outstanding balance on your current card to a new credit card at a 0% interest rate. This offer lets you pay zero interest on your debt for a short period.
Let’s assume you have $15,000 outstanding with your current card company, and the company charges you a 15% APR. If you were to leave that money due for another year, you would need to pay an additional $2,250 in interest. However, if you were to transfer this $15,000 to a new card with an introductory offer allowing you a 0% APR for a year, you would have the chance to pay off this debt with no additional interest.
However, this offer is usually only for 6-12 months. And, if you are unable to pay off your statement balance within the introductory offer period, you will be charged the standard interest rate of the new company, which could be higher than the rate you were initially paying.
Consider the following about balance transfers before applying for a 0% APR card:
- Usually, to transfer your balance from one card to another, you have to pay a balance transfer fee of about 3-5% of the transfer amount. So, if your outstanding balance is $15,000, you pay an additional fee of $450-$750 to transfer your balance. However, this fee is worth it if you can make the most of the offer by paying back the balance within the introductory period.
- You can’t pay off a card bill with another card from the same bank. You usually have to sign up with a card from a new bank, and this requires you to have a decent credit score. If you have a poor credit score, you may not be eligible to apply for a new credit line or avail of a 0% APR offer.
- You don’t know if the new card will lend you enough credit to cover your previous debts. If, for example, you have $15,000 outstanding on your card, and your new card company sets your credit limit at $7,500, you will only be able to pay back half the amount using your new credit card.
Pros and Cons of a Balance Transfer
Here’s a small table explaining the pros and cons of a balance transfer:
- An introductory 0% APR offer on your new card allows you a period of no interest. During this period, you can focus on paying off some or all of the principal amount.
- If you have outstanding debt on multiple credit cards, transferring all the balances onto one new card will make your monthly payment process easier.
- When you get a new credit card, the total amount of credit available to you increases. So, your credit utilization ratio reduces if you don’t take on any new credit.
- As you continue to pay back the debt, your credit utilization ratio will keep decreasing, which will improve your credit score.
- A balance transfer fee of 3-5% of the transfer amount might be applicable, increasing your outstanding debt.
- If the transferred balance is not entirely paid off before the introductory offer period ends, you will be charged the new card’s regular interest rate on the outstanding amount. This APR could be higher than what you were initially paying.
- Applying for a new credit card will reduce your credit score, especially if you make more than one application.
Cash advances are an easy way to get funds during an emergency. However, this quick cash comes at a high price.
A cash advance allows you to withdraw money from the credit available to you. You can then use this cash to pay off another card’s statement balance.
However, this method of paying back credit card debt is not recommended. It can be considered as a “credit health risk.” Here’s why:
- When you borrow cash from your available credit limit, you are charged a higher interest rate than if you were to make a purchase using that credit card. The interest rate for a cash advance on most credit cards is 25-27%. This is steep compared to the average credit card interest rate of 20.48%.
- Some card companies charge you an additional fee to let you draw cash from your credit line. This fee is usually 3-5% of the amount you are withdrawing.
- If you take out this cash advance by swiping your card at the ATM, you’re likely to be charged an additional ATM fee.
- Getting a cash advance on your credit card may not solve your problem. Most companies have limits on how much cash you can withdraw, so you may not be able to cover your entire outstanding debt. Moreover, the additional charges you pay will increase your total debt.
What To Do Instead of Paying Credit With A Credit Card?
While you can use one credit card to pay off the outstanding balance on another, carefully consider the pros and cons of your options before opting for a 0% APR card or a cash advance.
The cons outweigh the pros in most cases due to high interest payments, and other credit-damaging factors. Factors like applying for a cash advance or a personal loan can be risk factors for your credit.
Instead, you should consider the following:
- Pay at least the minimum balance due on or before the due date to avoid incurring lateness and penalties on your credit score.
- Your credit card will allow you to make partial incremental payments before your balance due date. Consider paying down your balance before it’s due.
- Consider forming habitual early smaller payments to keep your credit utilization ratio low and your debt burden minimal. Experian suggests making several early payments a month whenever possible to always pay at least the minimum balance and avoiding fees.
- Experian also suggests setting up autopay so that your minimum balance will be paid on time, and you won’t need to worry about potentially forgetting to do it manually.
VITAL Card’s mission is to empower its users and members with the knowledge to make intelligent financial decisions. We are the credit card that pays you to share and spend responsibly. So what are you waiting for? Sign for early access now!
“What Is a 0% APR Credit Card?,” Forbes Advisor