Here’s what you may have to pay when you consolidate your debt.
When you’re considering a balance transfer, you’re looking to save money on paying down your debt. So why would you pay a fee to move your money from one account to another? Balance transfer fees — usually between 2% and 5% — are fees credit companies charge you to move your debt to their card.
Compare balance transfer credit cards
What is a balance transfer fee?
A balance transfer fee is a fee credit card companies charge to move your debt to their card — usually a flat fee of $5 or a percentage between 2% and 5%. Promotional offers of 0% APR for 12 months for a balance transfer look appealing to those looking to pay down debt fast. But, if you read the fine print, you’ll find the transfer fee.
Credit card companies charge balance transfer fees because they can. If you’re looking to transfer a balance from one card to another, you’re looking for a deal. Credit card companies bank on new customers overlooking or disregarding a transfer fee as insignificant. But if you do the math — transferring a $8,000 balance with no APR would cost an additional $400 with a 5% transfer fee. So now you’re debt has grown to $8,400.
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 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’re 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.
You’re transferring $10,000 onto a new balance transfer credit card.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.
You’re transferring $10,000 onto a new balance transfer credit card.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 terms and conditions of the card. You should be able to find your answer under the “fees and rates” section. If you’re still unsure, contact the provider’s customer service team to confirm what you’re expected to pay.
How to find a no-fee balance transfer card
To help you decide on the best no-fee balance transfer card for you, consider these criteria:
- Intro APR. Some cards offer 0% APR on balance transfers, which can provide you a break from interest.
- Ongoing APR. Will you pay off your debt before your intro APR ends? If not, consider what the ongoing APR will be. If you plan on carrying debt for a long time, low-APR cards might be a more attractive option, even if you have to start paying interest on your balance immediately.
- Annual fee. An annual fee can knock off a bit of your savings from a balance transfer card, so factor it in when you’re doing the math.
- Ongoing balance transfer fees. If you plan on transferring balances over long periods of time, confirm whether your card offers no fees indefinitely or only for an intro period.
Are credit cards with no balance transfer fees better offers?
It depends. You may find a stellar card that doesn’t charge a balance transfer fee and offers a low APR of 10% or less. This situation can save you hundreds of dollars. If you’re transferring a high amount to a credit card with a 0% APR for 12 months, you’ll likely pay less in transfer fees than you would in APRs.
However, no-fee balance transfer cards often come with short 0% APR periods — or none at all. If you don’t pay off your balance by the time the promotion expires, your remaining debt might be assessed at a high interest rate. With no 0% intro period, you’ll start paying interest on balance transfers immediately.
And watch out for other fees for cash advances, an annual fee and foreign exchange fee.
Tips to keep in mind with no-fee balance transfer cards
When you’re looking for a no-fee balance transfer card, consider the following:
- Offer terms. The no-fee transfer period may expire. Read the fine print to make sure you can take advantage of a free transfer.
- Look for other fees. You may be drawn to a card that offers $0 fee for transfers, but costs $100 a year to use. Make sure the card’s other fees don’t negate what you saved in your transfer fee.
- Compare savings. You may save more by paying a transfer fee and enjoying a 0% APR for 12 months. Make sure you do the math to see which deal saves you the most money.
- Number of transfers. Some credit cards give you unlimited transfers for no fee, while other limit your $0 transfer to only one.
Bottom line
If you’re committed to getting out from under your debt, finding a balance transfer card can help. Evaluate your needs, the fees and APR of your new card and what will save you the most money in the long run. No-fee cards with low APRs can help, but make sure you compare your options before you decide on a new balance transfer credit card.
4% apr vs 3% fee balance transfer
Hi Zia,
Thanks for your question.
The 4% APR is the amount of interest you will pay for any unpaid balance transfer amount. On the other hand, the balance transfer fee is a one-off payment that is charged when transferring your existing credit card debt to a new credit card.
We can easily understand the difference between the two if we set a sample figure. Say, you are transferring $10,000 and your options include credit card A with 4% APR and no balance transfer fee and credit card B with 0% APR on balance transfers but charges 3% balance transfer fee.
Credit card A will charge you about $400 on the first month and this may go down on the second month if you are able to reduce your principal balance by paying more than the required minimum repayment.
Credit card B will charge you a one-off $300 balance transfer fee which is normally charged on your first billing after credit card approval. This is the only time you will incur this fee.
I hope this helps.
Cheers,
Anndy