If you are unhappy with your current credit card or have received offers for credit cards with better terms, you may be considering transferring your balance to another card with more favorable terms. This type of transaction – transferring a credit card balance to a new card – is known as a balance transfer. Unlike purchases, balance transfers typically come with fees.
What are Balance Transfer Fees?
Balance transfer fees are a one-time charge you pay when transferring a balance from one credit card to another, usually at a lower interest rate. Fortunately, balance transfer fees are only charged when the transaction is made; so there’s no need to worry about any ongoing fees.
It’s important to note that since the balance transfer fee is added to your balance at the time of transfer, you can pay it over time while paying off the transferred balance. If you pay off the balance at a promotional annual percentage rate of 0%, you won’t incur any interest on the fees or the transferred balance.
How Much are Balance Transfer Fees?
Based on our analysis of 215 credit cards that offer balance transfers, we found that balance transfer fees are typically charged as a percentage of the amount transferred – usually between 3% and 5%, sometimes with a minimum fee of $5 or $10. Only two credit cards in our results set a cap on balance transfer fees.
Comparing balance transfer fees with any other promotional terms can help you determine whether you want to 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 under the section regarding other credit card fees.
It’s important to note that there is no cap on the amount of the balance transfer fee for the majority of credit cards that offer balance transfers, so your fees can add up to hundreds of dollars if you are transferring a large balance.
How Do Balance Transfer Fees Work?
Balance transfer fees are charged on the credit card balance when it is transferred from the old credit card to the new card. Let’s say you want to transfer a balance of $3,000 to a new credit card that charges a 3% balance transfer fee or $5, whichever is greater. The fee will be added to the transfer amount, so the calculation will be: 3000 × 0.03 = $90. A minimum flat fee will be estimated if you are transferring only a small amount. For example, if you transferred $150, the fee would be $5, because 150 × 0.03 = $4.50, which is less than the minimum fee.
Are Balance Transfer Fees Worth the Transfer?
Generally, the goal of a balance transfer is to save money on interest, especially if you’re applying for a transfer at a promotional interest rate. If the balance transfer fee is higher than the amount you would have paid in interest on your current credit card, then the balance transfer is not worth it. You can use a credit card repayment calculator to estimate how much interest you will pay based on the terms of your current credit card.
The best way to offset the cost of balance transfer fees is to pay off the new balance before the promotional period ends. Otherwise, the remaining balance will accrue interest at a regular rate.
How to Reduce or Avoid Balance Transfer Fees
Based on our analysis, we found that the highest balance transfer fees are 5% or $10. One strategy to reduce balance transfer fees is to look for a credit card that charges lower fees – 3% or $5 is at the lower end of balance transfer fees.
Some credit cards offer a promotional balance transfer rate for new cardholders who transfer a balance within the first few months of opening the account. Offers vary by credit card, so it’s essential to shop around to find the best deals. If you find such an offer, you can lower the fees charged by making the transfer shortly after opening the account.
You can
Try to negotiate for a lower fee, but do it before transferring the balance. Contact the customer service of your credit card issuer and let them know that you are interested in a balance transfer, but you would like a lower fee. If you have competitive balance transfer offers from other credit card issuers, you can use those as leverage to convince them to offer a lower balance transfer fee or waive it altogether.
Source: https://www.thebalancemoney.com/balance-transfer-fee-definition-959989
Leave a Reply