Falling deeply into debt on a credit card with a high interest rate might tempt you to whip out a second card to pay off the balance. But can you really pay a credit card with a credit card?
“The short answer is no,” says Paul Golden, spokesman for the National Endowment for Financial Education.
Credit card companies typically will not allow you to use one credit card to pay debt on another card, Golden says. That reluctance is largely because of fees associated with processing.
If you want to pay a credit card bill with another credit card, you need to get creative. “There are workarounds,” Golden says.
The primary ways to accomplish this are to:
— Take a cash advance on one card to pay the other.
— Use a balance transfer.
Both approaches have drawbacks, Golden says. “I don’t see a lot of pros, particularly with the cash advance,” he says.
[Read: Best Balance Transfer Credit Cards.]The Pros and Cons of Cash Advances
Pros:
The main appeal of cash advances is immediate gratification: You don’t have to wait for approval, and you can get cash whenever you need it.
Take your card to a bank branch or an ATM, use a convenience check from your card issuer, or request an advance on the issuer’s website or mobile app.
You can borrow up to your cash advance limit, which is typically a percentage of your card’s credit limit.
Cons:
Convenience can come at a price. You will need to repay the advance, as well as fees and interest charges.
A cash advance usually involves expensive fees that make it a poor option for paying off debt, Golden says. The typical cash advance fee is between 2% and 5% of the amount of the advance, with a minimum fee of $5 to $10, according to a U.S. News credit card fee study.
If you use a credit card to withdraw cash from an ATM, you could also pay ATM fees. Plus, your interest rate will be higher for advances than for regular purchases, and you won’t have a grace period before interest starts to accrue.
Cost isn’t the only concern about cash advances, though. Caps on advances could mean that you won’t be able to withdraw enough to cover a big credit card bill.
“Normally, your cash advance limit is going to be far less than what your credit line is,” Golden says.
[Read: Best 0% APR Credit Cards.]The Pros and Cons of a Balance Transfer
Pros:
A balance transfer credit card with an introductory 0% annual percentage rate can help you save money and pay down your debt faster because your payments go entirely toward your principal balance. Many credit card companies offer introductory rates on balance transfers that last at least a year.
You may also be able to move multiple debts onto a balance transfer card to have a single monthly payment.
Find a card with a very low interest rate to use this strategy well, says Sierra Izzard, director of operations at Pacific Debt, a San Diego debt settlement company.
“You are taking a balance that is higher interest — maybe 10%, 15%, 20% interest — and you’re consolidating to a card that has a promotional interest rate as low as 0%,” Izzard says.
But a caveat is that a balance transfer can pay dividends only if you remain disciplined and committed to paying off the balance as quickly as possible, Izzard says.
“If you can consolidate everything onto one card and you’re able to make double, triple, quadruple your minimum payment to pay that card down during the promotional interest rate, it makes a lot of sense,” he says.
Cons:
A balance transfer card isn’t the right choice for everyone.
The new card could tempt you to spend money you don’t have, for example, if you lack a payoff plan. That means you may not pay off the debt you moved to the card and only add to your debt.
Make sure you know how long the card’s introductory rate lasts so you can plan how to clear the balance. Introductory offers can last from six to 21 months, according to the credit bureau Experian.
You can also expect to pay a balance transfer fee of 3% to 5% of the transfer amount, with a minimum charge of $5 to $10, according to the U.S. News credit card fee study. This amount is about the same or slightly higher than the fee you would pay for a cash advance.
“That can be a pretty significant number, depending on how much money you owe,” Izzard says.
This move might not work for someone who is “just barely holding on” and making minimum payments, Izzard says. “It could be more of a risky strategy for somebody like that.”
A balance transfer is also not the best choice for you if you tend to miss or be late on payments. “Typically, you’re going to lose your promotional rate, and it’s going to go to a default rate,” Izzard says.
That default rate, or penalty rate, is often at or near 29.99%, according to Experian, and will not be removed until you make six consecutive on-time payments.
You will also need to have good credit to qualify for most balance transfer cards, which may be a concern if you have a lot of debt and have fallen behind on payments.
Alternatives to Credit Cards
Other options could make more sense for paying down your debt than a cash advance or balance transfer. Here are a few:
Debt consolidation. A debt consolidation loan is a good alternative, as long as you get one with a low rate and commit to paying off what you owe.
Credit counseling. You also might consider talking with a credit counselor if you’re feeling overwhelmed. Contact an agency accredited by the National Foundation for Credit Counseling, which can help you understand your options and develop a personalized plan to solve your money problems.
Debt avalanche and debt snowball payoff strategies. Either method can help you pay down debt. List your debts, and plan to make minimum payments on all but one of them.
If you select debt avalanche, you will pay off cards in order from highest APR to lowest APR. This approach saves you the most money because you pay the least in interest. Debt snowball pays off cards from lowest balance to highest balance to provide a quick win and motivation to continue.
[Read: Best Rewards Credit Cards.]Getting to the Root of the Problem
Regardless of how you pay down your debt, you may be unlikely to stay out of debt unless you answer a deeper question: Why are you overspending in the first place?
Take a hard look at how you got into debt, Golden says.
“If you max out one credit card, I would stop there, and I would figure out what happened,” Golden says. “What did I do? What was I charging? Was it an appropriate charge? How come I can’t pay off my balance every month?”
Committing to better spending habits rather than seeking another quick fix is the best way to get a handle on a debt problem, Golden says. “Unless you remedy the problem with the behavior, you are just going to have more problems down the road,” he says.
Someone might use a balance transfer to move debt to a new card only to start the spending cycle on the old card again, Golden says.
A budget is a good starting place to avoid spiraling debt.
“The first thing that all consumers should do is sit down and go through a budget for themselves,” Izzard says. “Look at how much money they have coming in and how much they have going out each month and determine what they can afford to pay on a monthly basis.”
Sadly, little time and effort are needed to put yourself in a bad financial situation, Golden says. “It takes a lot longer to get out of it — and a lot more planning and a lot more work,” he says.
