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Can I use a credit card to repay an outstanding credit card?

pair of credit cards
Yes, you can use a credit card to repay an outstanding credit card. There are actually a few benefits to doing this, at least if done right.

But just because you can, doesn’t mean you should.

To a degree, using one credit card to pay off an older one can even be considered analogous to burning down your house to try and keep warm. While it will handle one problem, it merely trades it for another.

Credit cards are little more than personal loans. When consumers borrow money for personal needs, they get into debt for every dollar they spend. Interest is applied to how much money they have borrowed and spent beyond the course of one month.

Ideally, credit card owners will only use a card that has a low interest rate. However, not everyone is so fortunate. The higher the interest rate on a credit card, the easier it is to fall deep into credit card debt, and the more likely a borrower is to seek out an alternative way to repay it.

Unfortunately, using a new credit card to pay off an older one exposes borrowers to a whole host of potential problems. At least, if done improperly.

To learn more about the benefits and pitfalls of credit cards, and how to use a new one to pay off an old one, loans.org interviewed several debt experts, some of which have even personally used the practice themselves.

Michael J. Citak, CEO of JustAHead Productions, told loans.org that he himself had used one credit card to pay off another.

“In the world of small businesses, since the collapse of the financial markets and the bank scandals, people are being forced to creatively lower their bills while not spending more money,” he said.

Citak reminded borrowers that they would have to understand that any money they use must still be repaid at some point, just as it would with a short-term loan or a personal loan.

He said that under ideal conditions, borrowers would have 30 days to float their credit card debt after paying it off with a new card. Of course, that just delays the inevitable.

“If you borrow money from Peter to pay Paul, then continue the cycle... it's like cooking the books in business,” said Citak. “It looks good on paper but in reality you still have no money. Eventually the credit cards will find out.”

Instead of using new credit cards to pay off old cards, Citak recommends that borrowers consolidate their bills to a single lower interest card in order to bring down their monthly payments.

In the end, he believes using one card to pay off the other is a warning sign that a borrower is living beyond their means.

“Think of your personal finances like a business and then you'll think twice if you really need to buy those new shoes,” he said.

Citak claims that his credit card debt reached such drastic levels that he filed chapter 11 bankruptcy in 2007, but has since rebounded and financially recovered from his mismanagement.

The Slippery Slope of Debt

Jason Laux, Vice President of Synergy Financial, told loans.org that credit card debt is most certainly a slippery slope.

“In terms of paying off one credit card with another, there is one word to focus on – discipline,” said Laux. “A consumer who is truly committed to discipline, making a full and efficient effort to put a payback plan in place to finish paying the balance before the 0 percent offer expires, can win using this strategy.”

Laux said that by opening up a new card with 0 percent or low interest balance transfer options, consumers will indeed delay the immediate need to pay the debt down, but credit card companies know this and do not offer these balance transfer options out of the goodness of their hearts.

He claimed that credit card companies are waiting for the opportunity to pile interest on top of the balance after an offered promotional period has ended. He believes that credit card companies know that old habits die hard and are counting on the consumer, who has already fallen into a debt situation, to remain buried, all the while allowing the companies to collect the growing interest.

Chris Owen, Manager of Hooters Management Corporation, told loans.org that he owed $17,000 worth of credit card debt, but worked his way out of it by saving money thanks to free fee transfers over a five-year period.

Surprisingly, Owen remarked that there are actual benefits to paying one card with another.

First, card users can benefit if this is the only way they have to pay the payment without garnering a fee. Although this isn’t ideal, it may be a necessary step when trying to keep one’s proverbial head above water.

Owen also said that some companies give bonuses for using their cards, such as bonus miles, reward points, and cash back benefits. Despite these financial benefits, Owen still wants borrowers to know that there are downsides to paying one card with another.

“Every company charges different APRs and this is something the consumer must consider,” said Owen. “Is it worth gaining more interest? Probably not.”

Plus there are transaction fees that some cards charge for balance transfers. If those begin to accumulate, a borrower can quickly find his or her situation spiral downwards.

Owen thinks that consumers should purchase within their means. He himself used the same practice to get out of debt. Now, he only maintains credit cards for necessity purchases rather than for buying frivolous items.

“The country is in debt, all of us must do our part so we are not personally in debt as well,” he said.

One Eye on Interest

Johnathan Ness, author of “Your True Value,” told loans.org that borrowers who want to use one card to pay off another should only use a card that has a low introductory interest rate. They should also cancel the credit card once it has been used to pay off the older credit card in order to avoid the temptation to use it again.

Ness explained that a card with a lower interest rate will allow borrowers to have a lower monthly payment.

“A lower interest rate can drastically reduce your monthly payment,” said Ness. “If you have $10,000 on a card with 19 percent interest and can switch it to a card with 9 percent interest, assuming both are set to fully pay off in 30 years, your payment would drop from $158.89 to $80.46. I'd recommend that anyone doing this continue to pay the $158.89, however, reducing the payoff time from 30 years to just over seven.”

An additional benefit, according to Ness, is that if borrowers pay down their balance more quickly, there is less debt on their credit reports, which improves their overall credit score and makes it easier to get loans for big purchases, such as a house or car. Some companies also run credit checks on potential employees, so a healthier credit score can help in this area as well.

While the advice of these experts varies, borrowers who are behind on a credit card should make the decision they are most comfortable with that will lead them back to financial stability.