Paying one credit card’s debt with another card is not exactly possible, but that doesn’t mean you can’t do a balance transfer to avoid paying interest on that debt. Read on to see the pros and cons of a balance transfer, along with tips to do it right.
You’ve charged so much on your favorite credit card that you’re almost at its credit limit. You need to pay off that debt fast. Can you use a different credit card to pay off all those purchases?
The short answer is no. At least not directly. Credit card providers don’t allow you to pay off your debt simply by charging it to another card.
But there is an indirect way to pay off this debt with another credit card: a balance transfer. Here’s what you need to know.
See related: Best balance transfer credit cards
How to use one credit card to pay off another
Why a balance transfer allows you to pay one card with another card
In a balance transfer, you usually move the debt from one credit card to a new one. Most of the time, you’d do this if the new card offered a significantly lower interest rate than the one attached to your existing card. For instance, many credit cards offer new users 0% interest on balance transfers for a limited time, usually six to 18 months.
Every now and then issuers may also issue special balance transfer promotions on existing cards as a way to encourage current cardholders to use more of their available credit.
If you have a lot of debt on another card – often at a high interest rate of 20% or more – you’d open the new card and transfer your existing debt to it – or to the existing card offering you the special balance transfer promotion. This would leave you with no more debt on your high-interest-rate credit card. Instead, that debt would now be on your new card, the one with a 0% initial interest rate.
During the 0% period, your debt won’t grow because of interest. This should give you time to pay it down without worrying about it rising from month to month.
What you need to consider before transferring a balance to another card
The challenge? That 0% rate doesn’t last forever. After the teaser period ends, the card’s regular interest rate kicks in. That could be high, 19%, 21% or higher depending on the card.
If you don’t pay off your transferred debt by this time, the new interest rate will be attached to whatever is left. You’ll then be stuck paying high interest on your credit card debt again.
You might even complete a balance transfer and then run up debt on your first card even while trying to pay off the debt you transferred. This can leave you with more debt than you faced before you completed your balance transfer.
Jon Dunlin, Philadelphia-based founder of MoneySmartGuides.com, said the biggest mistake people make when using a balance transfer is they don’t address the reasons why they are overspending.
Dunlin has experience with this. He once ran up $10,000 of credit card debt, not realizing he was overspending largely because he suffered from depression. Once he tackled his depression, he stopped overspending and committed to paying down his debt.
But while he was overspending, the balance transfer he completed did nothing to reduce his credit card debt. Like too many others, Dunlin completed his balance transfer and then ran up new debt on his first card.
“As great as the motivation might be to get out of debt, a lot of people don’t address why they get into debt in the first place,” Dunlin said. “If you don’t address the underlying issue, you’ll start spending on that first card again, even if you are motivated to pay down your debt.”
How to make a balance transfer work
The key to making a balance transfer work is to determine how much money you’ll need to devote to your credit card debt so that you’ll pay it off before the 0% period ends. You can’t run up new debt on your old card, either. Doing this will defeat the purpose of a balance transfer and leave you with even more debt than when you started.
There are other balance transfer challenges:
1. You can’t transfer the debt on one credit card to another card offered by the same provider
If you have $5,000 of debt on a Capital One card, you can’t transfer that debt to another card offered by Capital One.
2. You might not be able to transfer all the debt from a specific credit card
Your new card will come with a credit limit. You won’t be able to transfer more than that limit.
If you owe $4,000 and your new card comes with a maximum credit limit of $3,000, you won’t be able to transfer your entire balance. The provider of your new card might not even let you transfer enough debt to hit your credit limit. This will further limit the amount you can transfer from one card to another.
3. Balance transfers usually come with a fee
These fees typically range from 3% to 5% of the amount you are transferring. If you are transferring $5,000, a 3% balance transfer fee will cost you $150.
How to pick the right balance transfer
Michael Micheletti, director of corporate communications at Tempe, Arizona-based Freedom Debt Relief, said consumers should always look for a balance transfer option that provides the greatest number of months to pay back your debt before the promotional interest rate ends.
Transferring your balance to a credit card that gives you 18 months before the 0% offer expires is a better move than moving your balance to a card that gives you just six months before the new interest rate kicks in, Micheletti said.
Consumers should look, too, at their entire debt situation. A balance transfer will be little help if you owe thousands of dollars on several credit cards and personal loans. Micheletti said credit counseling and debt consolidation loans might be a better move for consumers whose debt challenges are that severe.
“Don’t look at the debt on one credit card in a vacuum,” Micheletti said. “Look at a balance transfer in relation to all the other debt burdens you have.”
Micheletti said a balance transfer can be an effective way to tackle high-interest-rate credit card debt, if you commit to paying off that transfer before the promotional interest rate expires.
But if you don’t do this and you keep spending? Using one credit card to pay off another won’t bring you any financial relief.
Howard Dvorkin, a certified public accountant and founder of Debt.com, said there’s a reason credit card companies offer 0% balance transfers: They want to make money, and they know that most consumers won’t pay off their debt before that promotional interest rate expires.
“Instead of using those months to pay off their debts, [consumers are] more likely to run up their balances,” Dvorkin said. “Debt is a disease that’s simple to diagnose but hard to cure.”