Here’s what you may have to pay when you consolidate your debt.
Balance transfers can be a useful way to consolidate your debt without the cost of high interest. While you’ll save on interest with a lower introductory rate, this doesn’t mean that balance transfers are cost-free. As well as the standard card fees, you will typically have to pay a one-time balance transfer fee.
Balance transfer fee defined
A balance transfer fee is a charge from your credit card company – typically between 3% and 5% of the transferred amount – that allows you the convenience of transferring your outstanding debt or debts to a new credit card that likely has a promotional period offering little to no interest for anywhere from 12 to 24 months. The money saved in interest can then be used to make larger payments to help get you out of debt faster.
How balance transfer fees are calculated
A balance transfer fee is charged when transferring your existing credit card debt to a new credit card. It’s generally 3% to 5% of the total balance being transferred. Usually this fee is set at a minimum amount, and you’ll be required to pay the larger of the two. For example, either $5 or 3% of the amount of each transfer, whichever is greater. If 3% of the amount you are transferring is less than $5, then you will be charged $5. Only a very few banks will cap the transfer fee — most only set a minimum.
The card has a 3% balance transfer fee with no cap.
Because the card has no cap on the fee, you’ll pay $300 ($10,000 x .03 = $300).
As you can see, balance transfer fees can add up quickly if you are transferring a large balance to a card with no cap on their fee.
The card has a 2% balance transfer fee with a max of $75. Because 2% of $10,000 is $200, you’ll pay just $75.
If you’re wondering what fee you’ll be charged to transfer a balance, check the relevant Terms and Conditions, and you should be able to locate your answer under the “fees and rates” section. If you’re still unsure, contact the provider’s customer service team to confirm what you’ll be expected to pay.