Balance Transfer Fee: Is It Worth It?
A balance transfer is a smart move to get a break on interest rates. But most cards charge a balance transfer fee. Is it worth it and can you avoid it?
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If you have credit card debt, a balance transfer could be the fastest way to pay it off.
Many cards offer promotional 0% APR on balance transfers for a certain length of time. This gives you time to pay off debt without accumulating more interest.
But wait! 0% APR offers don't necessarily mean free. You still need to pay a fee to make the transfer.
Is it worth it still? Or does this fee totally negate the purpose of a balance transfer?
Read on for what you need to know about balance transfer fees, including when they're not worth it and how to avoid the fee.
- You can only move a balance between different banks. For example, you can't move a balance from an existing Chase card onto a new Chase card.
- It doesn't need to be just credit card debt. You can also transfer balances from personal loans and store cards.
- After you get the card, you usually have a limited time from account opening to make the transfer in order to get the promotional rate.
What Is the Balance Transfer Fee?
Most banks will charge a one-time fee to move your balance over. Typically, this fee is 3% or 5% of the amount you're transferring (with a minimum of $5 or $10). This means for a transfer of $5,000, you will pay a fee of $150 or $250.
Most credit cards will give you a limit for balance transfers. This may or may not be equal to your total credit limit. And it typically includes any transfer fees.
Some credit cards have a balance transfer promotion where this fee is waived if you make the transfer within a certain time from account opening. At the end of this article, we recommend a few cards that have no balance transfer fees.
- Bank of America: 3% or $10 minimum
- Chase: 5% or $5 minimum
- Discover: 3%
- Capital One: 3% (for promotional rates)
- Citibank: 3% or $5 minimum
Is a Balance Transfer Fee Worth It?
In most cases, even if you do have to pay a fee for the transfer, it is worth it to get a break on interest rates. The accumulating interest could far outweigh the transfer fee.
For example, let's say you currently have $5,000 in debt at an interest rate of 12.77% (the average interest rate). If you plan to pay this off in 1 year, the interest alone will come out to $352.56.
Or you can transfer this balance to a card with a 0% APR promotion for 12 months. Even if the transfer fee is a high 5%, that's $250 - a hundred dollars less than what you would have paid in interest.
To calculate your savings with your specific situation, use our balance transfer calculator.
Enter information about your existing credit card(s)| Card | Balance | APR (Interest Rate) |
|---|---|---|
| #1 | $ | % |
| #2 | $ | % |
| #3 | $ | % |
Enter information about the card you're transferring to
| Enter the intro APR on Balance Transfers (Interest Rate): | % |
| Enter the length of the intro period: | months |
| Enter the regular APR (Interest Rate): | % |
| Enter the annual fee: | $ |
| Enter the balance transfer fee (% of balance): | % |
| Enter monthly payment: | $ |
But It's Not Always a Good Idea
If you have a small balance you can pay off in a few months, just stick with the old card. A balance transfer fee may actually cost you more than the interest.
- If the transfer fee is 3%: Don't transfer if you can pay off the balance in 4-5 months or less
- If the transfer fee is 5%: Don't transfer if you can pay off the balance in 7-8 months or less
For example, let's say you have $1,000 balance at 13.08% interest. You plan to pay it off in 4 months with monthly payments of $250. The interest will only be $28 over the 4 months. But a balance transfer fee of 3% will cost $30.
However, if you cannot pay off the $1,000 in just 4 months, then you'll save a few bucks with a transfer.
Play around with the balance transfer calculator above. You'll be able to see exactly how much you'll save (or lose).
How to Avoid the Balance Transfer Fee
The only way to truly avoid it is by opening a card that waives the transfer fee when you make the transfer within a certain time frame. If you're serious about paying off debt, this is the best option.
In particular, look for credit cards without a balance transfer fee.
However, keep in mind that these cards usually don't give any kind of rewards. Depending on how big your balance is, some people may think that a transfer fee is worth it if the new card has a sign-up bonus and rewards.
Bottom Line
Balance transfers are the best way to get a handle on your debt. Don't be scared by a balance transfer fee. If you have more debt or need a longer time to pay it off, the accruing interest can be a lot more than a 3% or 5% fee.
In general, short term transfers aren't worth the transfer fee, unless you apply for a card with a no-transfer-fee promotion. Before you apply for a card and make a transfer, use our balance transfer calculator to get an idea of the costs.
Write to Anna G at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.
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