An Overview of Your Credit Card's Balance Transfer Fee
If you're unhappy with your current credit card or you've received offers for credit cards with better terms, you may consider taking advantage of a promotional balance transfer offer. Six to eighteen interest-free months can potentially save you hundreds of dollars on interest and allow you to pay a big portion of your credit card debt, if not the entire balance. But, before you take the balance transfer, consider the cost of the balance transfer fee.
Balance Transfer Fees
Most credit card transactions that aren't purchases are charged a fee. Naturally, that includes balance transfers. A balance transfer fee is a one-time fee you pay when you transfer a balance from one credit card to another. Fortunately, the balance transfer fee is only charged when you make the transaction; you don't have to worry about any ongoing fees. Since the balance transfer fee is added to the balance at the time of the transfer, you can pay it over time as you pay off the balance you've transferred.
The typical balance transfer fee is 3% of the amount transferred, with a $5-$10 minimum. If 3% of the transfer amount is less than $5, your balance transfer fee will be $5. If you transfer a $3,000 balance, the fee would be $150. By comparison if you were only transferring $150, the fee would be $5 since 3% of $150 is $4.50.
Some credit card issuers charge a lower balance transfer fee for transfers made during the initial months of a new credit card and boost the fee after the initial period. If you find an offer like this, you can minimize the fee you're charged by making your transfer soon after opening the account.
Weighing the balance transfer fee against any other promotional terms can help you decide whether you accept a credit card offer and transfer your balance to the new card. You can find the amount of the balance transfer fee in the credit card disclosure in the section with other credit card fees.
There is no cap on the amount of the balance transfer fee credit card issuers charge, so your fee could be hundreds of dollars if you're transferring a big balance.
Is a Balance Transfer Fee Worth The Transfer?
Typically, the goal of transferring a balance is to save money on interest, particularly if you're applying for a balance transfer with a promotional APR. Replacing the interest with a high balance transfer fee may not allow you to save much money. If the balance transfer fee is higher than the amount of interest you would have paid on the current credit card, transferring the balance isn't worth it. You can use a credit card payoff calculator to estimate the amount of interest you'll pay under your current credit card terms.
The best way to offset the cost of the balance transfer fee is to pay off the new balance before the promotional period ends. Otherwise, the remaining balance accrues interest at the regular rate.
You can calculate the monthly payment amount needed to pay your balance during the promotional period. Divide your total balance, including the balance transfer fee, by the number of months or billing cycles in your promotion.
Can You Avoid the Fee?
Unless you choose a credit card that waives the balance transfer fee, there's no way to get around paying a fee to transfer a balance. You could try to negotiate a lower fee, but do it before you move the balance. Call your credit card issuer's customer service and let them know you're interested in transferring a balance, but would like a lower fee. If you have competitive balance transfer offers from other credit card issues, you can use these as leverage to help you talk your way into a low or no balance transfer fee.