Those who are new to credit or have used credit cards traditionally for a long time might wonder, “Can I pay my credit card with another credit card?” Actually, you can; regulations force creditors to accept virtually any reasonable method of payment by consumers. However, my question to you is: Why would you want to? Paying off credit cards with credit cards only moves your debt from one card to another, and there are very few logical reasons to do this.
Most people considering using one credit card to pay off another are in one of two situations: Either the household budget is extremely tight and another credit card is the only financing available, or a new card has arrived with a lower interest rate than the original card. In the first situation, my first advice is to sit down and make a workable budget without delay so that the household can escape its debt trap. In the second, there are circumstances where a balance transfer might be desirable, but consumers should always be careful when moving money, as fees can escalate quickly.
The Worst Financial Mistake: Paying a Credit Card with another Credit Card
Paying a credit card with another credit card because there is no other way to meet a minimum payment is a huge red flag. By doing this, you are only moving your debt from one card to another. While that might mean you make it to the end of the month without any bills overdue, it also means that you are continuing to pay interest on the same borrowing for yet another month, just on another card.
Even if the interest rate on the second card is lower, unless that interest rate is 0%, you are losing more money than you borrowed every month until the balance is paid off with cash. Thanks to compound interest, the amount of money you are losing only increases the longer this situation continues. How can you stop this?
- Make a budget. Find out where all of your money is going every month, and figure out where you can plug the holes. The average cable TV subscription is a whopping $86 a month. Cutting the cord might be hard, but if you’re seriously stuck paying one credit card with another, all extras must go until you get back on track.
- Look for extra money. Can you make extra money evenings or weekends by running errands, doing yard work, picking up a second job? It might be difficult, but it might also be necessary.
- Ask for a reprieve. You might be able to ask your credit card company for a temporary reprieve from payments while you cut extra bills and try to add income to your budget. Just be aware that even if your payments are waived, interest will continue to accrue on your account.
The Potential Financial Mistake: How to Pay Off One Credit Card with Another
Paying off credit cards with credit cards is always a risky proposition, even if you are not in financial trouble and are merely looking for the best deal. If you want to know how to pay off one credit card with another, here’s how to do it without getting burned.
- Ask about fees. If a new card is offering fee-free balance transfers, make sure that the original card won’t charge you a fee either. The original creditor will lose out on your interest payments if you transfer the debt, and may try to make its margin with fees.
- Ask about payment schedules. Even if your credit is perfect, a 0% balance transfer is only good for a limited time – usually between 6 and 18 months. After that, you might be paying the same or higher interest rates for the debt as you were before.
- Look at the debt/credit ratio. Your credit score is based on a variety of factors, including your debt to available credit ratio on every card. If your balance transfer will consume 50% or more of your available credit on the new card, your credit score may take a hit. The higher the ratio, the more likely it is your score will go down.
There are better ways to become financially stable than jumping through balance transfer hoops. Stumble Forward’s 8 Step Debt Plan will help you get past living paycheck to paycheck so that you can start building wealth and a brighter financial future. Check out the 8 Step Debt Plan here, and check back with Stumble Forward regularly to stay on top of financial news and ideas that will keep you on the right track.