Balance Transfer Fees Explained: Are They Worth It?
The appeal of a balance transfer credit card is undeniable. You can transfer the balance from your credit card to a new card with a low or no-interest introductory rate, which can put a significant chunk of change back into your pocket.
But before you pull the trigger on a balance transfer, you'll want to understand what a balance transfer fee is on a credit card and how much it usually costs. We'll also walk you through how to figure out whether a balance transfer fee is worth it and ways to save.
Balance Transfer Fees at a Glance
Balance transfer fees range from 3% to 5% of the amount transferred and are usually due when you initiate the transfer.
While they can reduce the amount you could potentially save on interest, there are ways to try to reduce the costs.
You can gauge whether the balance transfer fees are worth it by checking fees and interest rates and having a repayment plan.
What Is a Balance Transfer Fee?
A balance transfer fee is what the credit card issuer charges when you do a balance transfer on a credit card. When you move a balance from an old card to a new one, you'll usually need to fork over a fee to save on interest fees.
The balance transfer fee is normally due when you do the transfer. Or you pay the fee over time as you make monthly payments and pay off your balance. Because this is an added cost, it's important to factor in a balance transfer fee when figuring out which balance transfer credit card to open. It can also help you decide whether the fees are worth it.
How Much Do Balance Transfers Typically Cost?
The balance transfer fee can be between 3% to 5% of your transfer amount. It might also be a flat fee of $5 or $10, whichever is higher.
A card's balance transfer can be spotted in a few places: the card's website under sections like "rates or fees" or "terms and conditions." So, you'll need to comb through the fine print.
How to Determine if a Balance Transfer Fee is Worth it
Interestingly, a common misconception is that all balance transfer cards are fee-free, says Daniel Masuda Lehrman, a financial planner and owner of Masuda Lehrman Wealth. "Most cards charge a transfer fee, which can offset the interest savings," says Masuda Lehrman.
So, let's say you want to transfer $3,000 from your current card to a new card. If the balance transfer fee is 3%, then you're looking at $90. Or if the fee is 5%, then the fee is $150.
To determine whether a fee is worth it, you'll want to do the following:
Do a fee and interest rate check
The entire point of a balance transfer is usually to pause on paying interest and saving a few bucks. You'll want to make the potential savings higher than the fee you'll get hit with.
DJ Jack, a financial planner with Abundo Wealth, offers the following example: You have $10,000 on your card, and you want to move it to a new one with 0% interest. If the transfer fee is 5%, that'll cost you $500.
"The key is to compare that fee to how much interest you'd pay if you just stick with your current card," says Jack. "If the interest comes out to less than $500, then transferring isn't really worth it. You can check on how much interest you'll end up owing by using a credit card payment calculator.
Read the terms and conditions
Neglecting to carefully read the fine print might mean overlooking important information that could cost you. For example, what is the balance transfer fee, when is the fee due, and what other fees might you be hit with?
Assess your financial situation
You'll want to get a big-picture look at your entire financial situation. This includes your overall debt, the interest rate of the balance transfer credit card, and your monthly cash flow, explains Masuda Lehrman. "You'll want to make sure you're not able to just delay payments without a clear plan to pay it off," he says.
Have a repayment plan
Without a repayment strategy, you risk carrying your debt past the promotional period, which can bury you back into the same hole and lead to high interest charges, says Masuda Lehrman. This can lead to high interest charges, which makes it harder to get to zero.
"Just don't do a balance transfer to kick the can down the road," he says. "The balance transfer is the opportunity to just tackle the debt, and having a plan over that, say, 12 to 18 months needs to be in place, or else it'll hurt you financially."
To make the balance transfer fees worth it, creating a repayment plan and sticking to it can help you avoid paying interest on the balance. Depending on the new card's standard APR, you might end up paying more in interest fees.
Balance Transfer Fees: Ways to Save
Find a no-fee card
While a no-fee balance transfer card is typically hard to come by, you can save by looking for a credit card with a zero annual fee—or an annual fee that is waived for the first year. Annual fees on cards can vary.
According to the Consumer Financial Protection Bureau (CFPB), the average annual fee for credit cards can be anywhere from $94 for small issuers to $157 for large issuers.
In addition to fees, check for late fees, returned payment fees, foreign transaction fees, and over-limit fees. Knowing the fees and trying to avoid them can help you save on the balance transfer card.
Find a low-fee card
The lower the balance transfer fee, the better. As balance transfer fees usually cost 3% to 5% of the amount you're transferring, see if you can find a card with a 3% fee. For example, if you're moving a $10,000 balance to a new card, a 3% fee is $300. However, if you move to a balance transfer card with a 5% fee, you'll pay $500.
Some balance transfer cards have a low fee for an intro period that usually lasts a few months and then kicks over to a higher rate. If that's the case, initiate the balance transfer during the intro rate. Going that route will help you save the most.
Negotiate for a lower fee
To get a lower fee, sometimes all you have to do is ask. But you'll want to do it in a strategic manner. Reach out to a customer agent of the credit card situation and explain your financial situation and that you'd ideally like to lower your fees. It could be helpful to point out that you have a solid credit history, 've shopped around, have other balance transfer cards, and looked for comparable offers. See what they're willing to do.
"A balance transfer is a tool, it's not a solution," says Michelle Petrowski, a CFP® and founder of Being in Abundance Financial Coaching. "Without addressing spending habits and budgeting, it can lead to even more debt in many cases and be a financial trap for the unwary."
Transfer a lower amount
You can save on balance transfer fees by transferring to a lower balance. When you transfer a lower amount, you'll also be paying less in fees. For example, a 3% fee on $5,000 is $150. A 3% fee of $10,000 is $300. While it might not technically be saving money on the balance transfer fee, you will be paying less because you're moving a smaller amount.
Further, it'll be easier for you to break up the monthly payments into smaller chunks. It might be more feasible to pay down the balance before the zero-interest period ends.
Frequently Asked Questions
How Do I Avoid Balance Transfer Fees?
You can avoid balance transfer fees by looking for credit cards with no or low fees or by trying to negotiate the fees down. If you can't avoid the balance transfer fee, you can look for one with a low interest rate.
How Much Will it Cost in Fees to Transfer a $1,000 Balance?
Balance transfer fees are normally 3% to 5% of the balance transfer amount, so the fees to transfer a $1,000 balance are $30 to $50.
What Is the Downside of a Balance Transfer?
The downside of a balance transfer is that you have to pay a fee, which adds to the costs of initiating a transfer. Another downside is that you might be tempted to rack up a balance on your old card when the balance goes to zero. You'll also need strong credit to qualify for such a card.
