Balance transfer fee: How to leverage high-interest debt
Get the facts on balance transfer fees before opening a balance transfer card.
Contributing Writer at Tally
April 6, 2020
Credit card companies are always looking for ways to entice you, and a balance transfer card is one way they do this. A credit card balance transfer is when you move debt from one credit card to a balance transfer card, often with a 0% introductory annual percentage rate (APR) for a limited time.
This introductory period — usually six months to a year — allows you to make interest-free payments and presumably pay off your debt faster. But it comes with some strings attached, including a balance transfer fee.
Typically, this one-time fee is 3%-5% of the total amount of debt transferred. While that might sound like a good deal, it’s critical to do the math before opting for a balance transfer credit card. Here’s what you need to know.
Advantages of a balance transfer card
High-interest rates make it difficult to pay off your credit card debt in a timely manner. If you have multiple high-interest credit cards — or even one — it might make sense to transfer your balance to a single, low-interest (or zero-interest) credit card. Here are some of the advantages of opening a balance transfer card.
You save money and time
When you transfer balances to a credit card with a 0% introductory rate, you can save yourself potentially hundreds of dollars in interest payments.
For example, say you’re paying 20% APR on a $5,000 balance and need at least 25 months to pay it off. If you transfer the balance to a new card with 0% APR for that same amount of time — even with a 5% balance transfer fee — you’d save yourself up to $1,133 in interest and four months of payments.
Your entire payment goes to your balance, not interest
By eliminating credit card interest charges for a set period, you don’t have to worry about accruing interest. Any money that would have gone toward interest charges can now go directly to paying down your overall credit card balance. Translation: You can become debt-free faster.
Payments are more convenient
When you move multiple balances to one new card, you’re also making your life less stressful. Rather than having to juggle multiple credit card balances and payments, you can make one monthly payment instead.
Disadvantages of a balance transfer card
Balance transfer cards come with their share of drawbacks. To avoid making common balance transfer card mistakes, consider these factors before clicking the “apply now” button on a balance transfer offer.
Balance transfer fee
Whether it’s a no-interest or low-interest balance transfer card, chances are it’s going to have an intro balance transfer fee. That one-time 3%-5% payment may seem small, but it can extend your payments by a couple of months depending on how much you pay monthly.
For example, if you transfer $8,000 to your new card, the total balance after applying the 3% fee is $8,240. If the balance transfer fee is more than what you’d pay in interest on your current credit card balance, then it’s not worth it. Use a balance transfer calculator to figure out if a balance transfer card can save you money.
Balance transfer limit
Many balance transfer cards come with limitations on the amount you can transfer. For instance, some cards only allow you to transfer up to $10,000 during the intro period. If you want to transfer more, you must wait until you’ve whittled down your balance first. However, if your debt exceeds $10,000, you may be better off applying for a personal loan with a fixed rate.
As with any credit card, late fees can be a quick way to rack up extra debt. While many balance transfer cards come with no late-fee penalties, some credit card issuers are less understanding than others. In the worst-case scenario, if you miss a single payment, you may incur an APR penalty that may be applied to your future balance. The APR penalty period can last up to six months (or longer) before returning to the previous lower APR.
High APR once the introductory period is over
Balance transfer cards tend to have high APRs, which means these cards are only helpful if you can pay them off within the agreed-upon, low-interest introductory period.
Calculate how much you can afford to pay back per month, and be sure to factor in the balance transfer fee. If you know you can pay down your balance within the timeframe of the low APR window, then a balance transfer card might be an ideal way to go.
If you can’t pay off the entire balance before the regular APR sets in, you could end up with high-interest payments that are probably just as bad if not worse than where you started.
You need good credit to get the best deals
To get approved for a balance transfer, you usually need a good FICO credit score, which ranges from 670-700. If your credit score is below this, then it might be a challenge to qualify for a balance transfer credit card.
Examples of credit cards with no balance transfer fees
While the best balance transfer cards are often reserved for those with excellent credit scores, it’s worth taking a look at some real-world balance transfer cards to see what’s currently available. These cards aren’t typical rewards credit cards — they are low-interest cards that can help you pay off your debt faster.
Bank of America’s
0% intro APR
14.49%-24.49% variable APR after 60 days
3% balance transfer fee
No annual fee
The 0% APR applies to your first 15 billing cycles and for any balance transfers made within 60 days of opening your account. There is no penalty APR for late payments.
0% intro APR
Late fee waiver
No penalty APR
14.49%-24.49% variable APR after 18 months
4% balance transfer fee
No annual fee
This card has an 18-month introductory APR period and an 18-month 0% APR for new purchases. It also won’t raise your APR if you pay late. Just be mindful of the 4% transfer fee.
0% intro APR
12.99%-23.99% variable APR after 15 months
3%-5% balance transfer fee
Extensive rewards program
This low-interest card also offers rewards. It has several ways to earn points with purchases, plus it comes with a 15-month 0% intro APR period and no balance transfer fee.
Do what’s best to pay down your debt
A balance transfer can be a good option if you have high-interest credit card debt and want to take advantage of a lower interest rate and simplify your payments. Still, to get a balance transfer credit card, you’ll likely need excellent credit to qualify for one with a 0% intro APR and no balance transfer fee attached.
If you don’t fall within this category, don’t stress. There are other options, including the Tally app, which can help you organize your credit cards into one monthly payment so you can tackle your biggest debts first and get closer to being debt-free.