Balance Transfer allows you to move your balance from one credit card to another. The main reason for this is usually to take advantage of the low APR introductory offer and pay off the balance on another card.
Transferring balances from cards with higher rates to cards with lower rates can save you money on interest. But this may mean paying a balance transfer fee that is added to the amount you owe.
If you are considering a credit card for balance transfer, it is important to know how the balance transfer fees add up. Keep reading to find out what you need to know.
What is a balance transfer fee?
A balance transfer fee is a fee that credit card companies may charge when transferring balance from one card to another.
Not all balance transfer cards charge them. There are some credit cards with no transfer fees. But more often than not, you will pay a fee for transferring the balance.
This fee is essentially a premium to the credit card company. It offers you the option to pay 0% APR on credit card balances. In return, it charges a balance transfer fee for transferring your balance from your old card to your new one.
How do balance transfer fees work?
Completing a balance transfer usually consists of two steps.
First, you apply for a new balance transfer card. When you apply, you tell the credit card company what balance you want to transfer, including the account number and amount.
If you are approved, the credit card company will process the transfer for you. The balance transfer fee is charged after the transaction is completed.
Assuming you transferred the entire balance from your old card, that card will now have $0.00. The balance on your new card will reflect the transfer amount as well as the transfer fee for the balance.
How much are the balance transfer fees?
The balance transfer fee depends on the card issuer. The usual balance transfer fee is 3% of the transfer amount, although some card issuers may charge up to 5%.
Credit card companies may set a minimum balance transfer fee threshold. For example, the fee could be $5 or 5% of the transfer amount, whichever is greater.
How much will it cost you to transfer your balance? Here are some examples to help you understand.
Let’s say you have a $5,000 balance that you plan to transfer to a Discover it® Cash Back card. To do this, you must pay a 3% balance transfer fee.
To find the fee, you multiply $5,000 by 0.03 to get $150 and add it to the original amount. So after the transfer is completed, your balance will be $5,150 ($5,000 plus $150 fee).
Now let’s say you want to transfer your $5,000 balance to a Bank of America® Customized Cash Rewards credit card. This card charges a balance transfer fee of $10 or 3%, whichever is greater.
If you calculate the commission at a rate of 3%, it will be $150. Since it’s over $10, that’s the fee you have to pay for the transfer.
So how much do balance transfers cost? The answer is that it depends on the card and the balance you are transferring.
Credit cards with no balance transfer fees
Some balance transfer cards do not charge a balance transfer fee. This can save you money, so it’s worth comparing credit cards with no transfer fees to see what’s available. Here are three popular cards to choose from:
First Tech Choice Rewards World Mastercard
The First Tech Choice Rewards World Mastercard* offers a starting annual interest rate of 0% for the first 12 billing cycles (between 9.0% and 18% thereafter). This card never charges a balance transfer fee as well as an annual fee.
You can earn 2x more points per dollar on groceries, gas, electronics, medical, household goods, and telecommunications when you are approved. All other purchases earn 1X points. You can also earn 20,000 Reward Points if you spend $3,000 in the first 60 days.
Wings Visa Platinum Credit Card
The Wings Visa Platinum* credit card does not charge any balance transfer fees, annual fees or overseas transaction fees. It has an introductory offer of 0% APR on balance transfers and purchases for the first 12 months. Thereafter, the usual variable annual rate of 8.40% to 18% is applied.
However, this card does not offer a bonus program. Instead, it is intended primarily for people who want to save on interest. But you also get other features such as Visa Offers, Visa Checkout benefits and car rental damage coverage.
Tips for handling balance transfer fees
The balance transfer fee may add to your total debt that you must repay. If you are considering a credit card balance transfer, it is important to understand how the balance transfer fee works.
- First, consider cards with no balance transfer fees.. While credit cards with no transfer fees are rare, some do exist. If you want to avoid balance transfer fees, take the time to shop around and see which ones offer the best combinations with low interest and no fees.
- Calculate the balance transfer fee. Before you apply for a balance transfer credit card, calculate how much the fee will be. You can easily do this with the Balance Transfer Fee Calculator.
- Plan your payout. One of the biggest mistakes you can make with a balance transfer offer is keeping your balance after the promotional period ends. Consider how much you will need to pay each month, including your initial balance and balance transfer fees, to pay off your balance before regular annual interest starts.
Is it worth it to transfer the balance?
Balance transfers can save you money on interest payments if you go from a double-digit rate to 0% per annum. Even if you have a bad credit history, you can still qualify for a lower rate with a balance transfer card.
Of course, the amount you end up saving depends on how much you pay for the balance transfer fees and whether you can pay off the balance before the end of the introductory annual period.
So let’s say you have a $5,000 balance to pay off. If your current annual interest rate is 18.99% and you pay $500 per month for the remainder, it will take 11 months to pay off. In the meantime, you will pay $486 in interest.
Now let’s say you transfer that balance to a card with a 12-month 0% APR promotion. You pay $150 for a balance transfer fee. If you pay $500 per month on a $5,150 balance with zero interest, it will take you 10 months to pay off that amount. Although you technically got back more than the principal due to the fee, you saved $336 because you didn’t pay any interest. And you paid off the balance a month faster.
You may also consider getting a debt consolidation loan or a personal loan to pay off credit cards with high interest rates. But while you may not pay a balance transfer fee for a loan, you’ll be hard-pressed to find one that offers 0% APR.
So is a balance transfer worth it? This can be if you are disciplined in paying the balance before the end of the APR promotional period.
bottom line
Credit card balance transfers can make debt management easier and offer some savings in the process. Accounting for the cost of balance transfer fees is vital to understanding how much you will repay. Before committing to a balance transfer, be sure to research the best balance transfer credit cards to find one that suits your needs.
*All Wings Visa Platinum and First Tech Choice Rewards World Mastercard information has been independently collected by CreditCards.com and has not been verified or approved by the issuer.
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