To settle a credit card bill using another credit card, you can utilize either a balance transfer or a cash advance. However, most credit card companies do not permit the direct payment of credit card bills with another credit card.
A balance transfer is a recommended course of action if it will help you save money and reduce your outstanding debts. On the other hand, cash advances should only be used in certain situations when there are no other options available since they come with high fees and interest rates.
Now let’s explore different ways how you can pay off a credit card balance.
What is a balance transfer?
A balance transfer is a method of transferring your existing debt from one credit product, such as a credit card, to another, often another credit card. The main benefit of doing a balance transfer is to obtain a lower interest rate on your outstanding debts.
For instance, let’s say you have a credit card balance of $5,000 with an APR of 18%. By performing a balance transfer, you could transfer this debt to another credit card that offers an introductory 0% APR period for balance transfers. This means you wouldn’t be charged any interest on the transferred balance for a specified period.
However, it’s crucial to note that a balance transfer fee usually applies to any balance transfer you make, which ranges from 3% to 5% of the total transaction. So it’s important to calculate how much you can save on interest charges by doing a balance transfer compared to how much you’ll have to pay in fees.
Before doing a balance transfer, it’s vital to review the terms and conditions of the new credit card to understand the introductory APR period, the standard interest rate after the promotional period, and any other fees or penalties that may apply.
Additionally, it’s important to ensure that you make your payments on time and in full to avoid late fees and penalties. Missing a payment could also result in losing the promotional interest rate, which could end up costing you more in the long run.
Cons of balance transfer
While a balance transfer can be a useful strategy to reduce the interest rate on your outstanding debts, it’s important to note that it can have a couple of negative impacts on your credit score.
Firstly, applying for a new credit card to transfer your balance typically results in a hard inquiry on your credit report. This inquiry is reported to credit bureaus and can have a small, negative impact on your credit score. However, the impact is usually temporary and should fade away within a few months.
Secondly, opening a new credit card account can negatively affect the average age of your credit accounts, which is a factor that affects your credit score. The longer you have a credit account open, the more positively it affects your credit score. So opening a new account can potentially lower the average age of your credit accounts and hurt your credit score.
In addition, a balance transfer can also affect your credit utilization, which is the amount of credit you’re using compared to the available credit. Ideally, you should aim to keep your credit utilization below 30% to maintain a healthy credit score.
A balance transfer can help reduce the credit utilization on one or multiple credit cards that you transfer balances away from. However, the balance transfer credit card could have increased credit utilization if you have a high balance on it. This could potentially hurt your credit score, so it’s essential to keep track of your credit utilization and aim to keep it low.
What is a cash advance?
A cash advance is a type of credit card transaction that enables you to borrow cash against your credit card’s available credit line. This means that you can use your credit card to withdraw cash, and the amount you withdraw is added to your credit card balance. Cash advances can be helpful in situations where you urgently need cash, such as for emergency car repairs or unexpected medical bills.
However, it’s important to note that cash advances can be expensive and should only be used as a last resort. When you take out a cash advance, you’re usually required to pay a cash advance fee, which is typically a percentage of the amount you’re borrowing. In addition, the interest rate on a cash advance is usually higher than the APR for regular credit card purchases, and interest starts accruing immediately with no grace period.
The process for obtaining a cash advance varies depending on the lender, but typically involves going to an in-person branch, using an ATM, or writing a check. It’s essential to understand the fees and interest rates associated with a cash advance before deciding to take one out, as the cost can quickly add up. If possible, it’s often better to explore other options, such as using savings or taking out a personal loan, before considering a cash advance.
