As a credit cardholder, managing credit card debt is one of your most significant financial challenges. Your objectives should include maintaining low outstanding balances, avoiding high interest rates, and ensuring timely minimum payments.
But what should you do if one credit card is maxed out and you’re struggling to make payments on it? Or if another credit card company offers you a card with a lower interest rate? Should you consider paying credit card debt with another credit card? That’s what we are exploring today – the scenarios where paying credit card debt with another credit card is a good idea and when it’s not.
Can You Pay Off One Credit Card Debt With Another Credit Card?
Paying credit card debt in Toronto with another credit card is not feasible because credit card companies do not allow using another credit card as a payment method. Typically, accepted payment options are cheque payments, electronic bank transfers, or money orders.
Nevertheless, there are alternative methods such as:
- balance transfers
- cash advances
How To Pay Off a Credit Card With Another Credit Card
Although directly paying one credit card with another isn’t possible, there are ways to transfer balances. Here are some methods and their pros and cons:
Balance Transfer
One approach to paying credit card debt with another credit card is by using balance transfers. By applying for a new credit card that offers balance transfer options, you can move your debt from one card to another.
Depending on the new card, you might be eligible for a lower or zero introductory interest rate, saving you money on interest charges during the promotional period. This switch from a high-interest card to a low-interest one can lower your long-term interest charges.
Cash Advance
Another method is taking out a cash advance on one card, depositing the funds into your bank account, and using that money to pay your other credit card bill. However, cash advances start accruing interest immediately, with no grace period.
Using a cash advance for paying credit card debt with another credit card doesn’t reduce your debt; it simply transfers the balance between cards.
Pros and Cons of Paying a Credit Card With Another Credit Card
Is it worth paying credit card debt with another credit card?
The main benefits of paying credit card debt with another credit card include avoiding late payment charges and potentially lowering your interest rate.
However, there are risks involved with paying credit card debt with another credit card, including:
Multiple Payments
Managing multiple credit cards requires understanding different billing cycles. This can result in having multiple monthly payments with varying due dates. The complexity can lead to missed payments, which increase interest costs and negatively affect your credit score.
More Credit Card Debt
Acquiring additional credit cards increases your overall credit limit. While using a balance transfer card to pay credit card debt with another credit card might seem tempting, avoid making new purchases on the new card. Focus on repaying the transferred balances first. Accumulating more debt can perpetuate a cycle of borrowing without addressing the root issue.
No Credit Card Rewards or Points
When paying credit card debt with another credit card through balance transfers, you won’t earn points or cash-back rewards. Balance transfers are considered payments, not purchases, and thus do not earn rewards. Similarly, cash advances do not qualify for reward points.
Balance Transfer Fees
Many credit cards charge a balance transfer fee, typically between 3% and 5% of the transferred amount, and most will also charge a fee for cash advances.
Additionally, some balance transfer offers may include an annual fee, so always review the terms and conditions.
Higher Interest Charges
Without a promotional interest rate, you might end up paying more in interest over time. The main advantage of a balance transfer credit card is the introductory APR offer, which usually provides an interest-free period. However, if the balance isn’t paid off before the promotional period ends, the remaining debt will accrue interest at the card’s standard rate, which could be higher than the original card’s rate. Cash advances typically have an average interest rate of around 24%, much higher than the average APR.
No Grace Period
Balance transfers or cash advances usually do not come with a grace period unless you have a 0% interest offer. Interest charges start accruing from the day of the transfer or advance.
Credit Score Impact
Applying for new credit cards results in hard inquiries on your credit report, which can lower your credit score. Credit utilization, the ratio of your outstanding balance to your credit limit, also affects your score. A higher utilization rate negatively impacts your credit score, although a new card with a higher limit could lower this rate if spending doesn’t increase. Seeking credit counselling in Toronto can help you understand these factors better and manage your credit more effectively.
Alternative Ways To Pay Off a Credit Card
Paying credit card debt with another credit card may seem convenient, but it’s not always the best choice. Even using the best balance transfer strategies may not be the most effective way to reduce your credit card debt.
There are smarter strategies beyond making the minimum payment and using one credit card to pay off another.
Debt Consolidation
Combining balances onto a single balance transfer credit card merges multiple credit card bills into one monthly payment with a potentially lower interest rate, making it easier to manage.
To qualify for a debt consolidation loan, you’ll need a good credit score and stable income. There are debt consolidation loans available for individuals with bad credit, but these loans usually come with very high interest rates.
Using a Line of Credit
Another option is a line of credit, which typically offers a lower interest rate than credit cards. Homeowners may qualify for a low rate through a home equity line of credit.
Personal Loan
Additionally, personal loans offer the flexibility of installment plans and fixed payments, often at lower interest rates than credit cards.
If you have bad credit, we do not recommend using a payday loan or high-interest fast cash installment loan to make credit card payments. Consider the annual interest rate of the new loan and ensure it is lower than the annual percentage rate on your credit card.
Emergency Fund
Building an emergency savings account can provide a financial safety net, allowing you to cover unexpected expenses without resorting to high-interest credit card debt.
What If You Can’t Pay Your Credit Card Debt?
Using one credit card to pay off the balances on another might seem like a quick solution for credit card debt, but unless you’re paying off the entire balance, you’re likely just shifting the debt around.
If you’re having trouble paying off credit card debt, consider exploring your options for debt relief. This might involve seeking assistance from a licensed insolvency trustee and considering alternatives such as a consumer proposal, bankruptcy, or a debt settlement plan.
Contact us for a free, no-obligation consultation if you need help managing your credit card debt or addressing mortgage insolvency in Toronto.
Conclusion
In conclusion, paying credit card debt with another credit card can be a temporary fix to avoid fees and high-interest charges, but it carries significant risks like higher interest rates, fees, and complex payments. It’s better to explore alternatives such as debt consolidation, personal loans, or using a line of credit.
If you’re struggling with debt, a Licensed Insolvency Trustee in Toronto can help you consider options like consumer proposals in Toronto, corporate proposals, personal bankruptcy in Toronto, or debt settlement plans.
FAQs
The time required for a balance transfer varies by issuer. Always continue making at least the minimum payments on the balance until you confirm that the account balance has been reduced to zero following the transfer. While many issuers complete balance transfers within a few days, some may take up to three weeks or longer. It’s crucial to avoid defaulting on the account during this period.
The act of performing a balance transfer may not directly affect your credit score, but changes in your credit utilization can impact it. Opening a new card for a balance transfer can increase your overall credit limit, potentially lowering your credit utilization and benefiting your credit score. Conversely, closing the account from which you transferred the balance might decrease your overall credit limit, negatively affecting your score. Additionally, if the closed account is your oldest one, this could further negatively impact your credit by reducing the average age of your accounts.
There are various strategies for paying off your credit card bill to keep your credit utilization low, but it’s essential to always pay the full balance before the deadline. Making only the minimum payment won’t prevent interest charges; the only way to avoid interest is by paying off the entire balance each billing cycle.
Typically, cardholders cannot use a rewards card to pay another credit card bill to earn points. Points are usually earned only on eligible purchases and not on balance transfers or cash-equivalent transactions, such as money orders or prepaid cards.