From rewards credit cards to no foreign transaction fees to cash back, credit cards offer many perks in their quest for new cardholders. One such perk is the balance transfer, which allows you to transfer part of your balance or the entire balance from one card to another.
Some credit cards use balance transfer as a tactic to attract new applicants by advertising an introductory offer with a low or 0% annual percentage rate (APR) for 6 to 18 months.
While the low rate may make a balance transfer seem like a no-brainer, there’s a catch. Most credit card issuers charge a balance transfer fee.
What is a balance transfer fee? How much does it cost? Is a balance transfer still worthwhile? We’ll cover this and more below.
A balance transfer fee is the amount a balance transfer credit card charges to transfer the balance from another credit card.
Balance transfer fees differ between credit card issuers, but they generally range between 2% and 5% of the total balance you’re transferring to the balance transfer credit card. Some credit cards also have a minimum balance transfer fee of $5 to $10 if you transfer a small balance.
For example, if you’re transferring $2,000 in high-interest credit card debt to a balance transfer credit card with a 5% balance transfer fee, the credit card company will add $100 to your balance upon completing the transfer. This would bring your total balance to $2,100.
Your FICO credit score and credit report directly impact your credit card interest rate, but they have no impact on your balance transfer fee. Everyone with the same credit card will pay the same balance transfer fee, whether they have excellent credit, good credit or their credit is just average.
Your credit score can, however, impact your qualification for a balance transfer credit card. These cards often require good or excellent credit to get approved.
There are several places you can find information on your credit card’s balance transfer fee. The first place you’ll encounter it is in the disclaimers and terms and conditions you agreed to upon account opening. This is generally in a section titled “Fees.”
Upon receiving your new card in the mail, the credit card company should have included a hard copy of the fee schedule. If you filed this away somewhere, you can find it and learn your balance transfer fee there.
If you don’t have a copy of the fee schedule, you may be able to find it online. Log in to your credit card account online and search for an area titled “Fees” or something similar. This is where you can find your balance transfer fee percentage and others, like the late fee, annual fee and more. Not all credit cards offer this fee schedule online, so you may not find it.
Finally, you can always contact customer service by calling the number on the back of your credit card, asking them to look up your balance transfer fee.
A 3% to 5% fee may not seem like much, but if you’re transferring large balances, they add up. However, this one-time fee is often better than paying ongoing daily interest charges — especially when you have a high balance or a card with a high interest rate.
Determining if a balance transfer fee is worth it for you is relatively simple. There are two ways to determine this: by time and by payment amount.
Use these steps to determine the interest you’d pay if you stuck with your current credit card, paying it off within the promotional APR period a typical balance transfer card might offer. Then, compare the interest you would pay to the balance transfer fee to see if the balance transfer is worth it.
- Determine your balance transfer fee by multiplying the transfer amount by the balance transfer fee percentage. For example, if you transferred $2,000 to a credit card with an 18-month promotional 0% APR offer and a 5% balance transfer fee, you’d pay a $100 balance transfer fee. If your promotional APR is not 0%, use an online credit card interest calculator to determine the interest you’d pay during the promotional period and add this to the balance transfer fee.
- Use an online credit card interest calculator to determine the amount of interest you’d pay if you paid off your current credit card during a typical intro APR period — in this example, it’s 18 months. Using the calculator above, we determine repayment of a $2,000 credit card at 19% interest over 18 months would cost $313 in interest.
- Compare the interest calculated in Step 2 to the calculation in Step 1. If the interest in Step 2 is greater than the calculation in Step 1, then the balance transfer is worth it. If the balance transfer fee is greater, it’s best to leave the balance on your current card.
A common way to use a balance transfer credit card is to make monthly payments that’ll pay off the card just before the introductory APR expires.
With these steps, you can determine how much interest you’d pay on your current credit card if you applied the same monthly payments to it as you would to a balance transfer card. You can then compare the interest you’d pay to the balance transfer fee to decide if the transfer is worth it.
- Determine your balance transfer fee by multiplying the transfer amount by the balance transfer fee. For example, if you transferred $2,000 to a 0% APR credit card with an 18-month promotion and a 5% balance transfer fee, you’d pay a $100 balance transfer fee.
- Calculate your monthly payment to pay off the balance transfer credit card within the 0% interest period by dividing the total balance (transfer fee included) by the number of months in the promotion. In our example, you’d divide $2,100 by 18 to get a $116.66 monthly payment. If your promotional APR is not 0%, use an online credit card interest calculator to determine the minimum payment you’d pay during the promotional period to pay it off and the interest you’d incur. Add the interest to the balance transfer fee.
- Use an online credit card interest calculator to determine the amount of interest you’d pay if you paid that same monthly payment toward your current credit card. With a $2,000 balance at 19% APR, you’d make $373 in interest payments, and it’d take 22 months to pay off the credit card.
- Compare the interest calculated in Step 3 to the balance transfer fee in Step 1. If the interest is greater than the balance transfer fee, then the balance transfer is worth it. If the balance transfer fee is greater, it’s best to leave the balance on your current card. In our example, the balance transfer is again well worth it.
So, what is a balance transfer fee? You now know it’s the fee credit card companies charge to transfer a balance from one credit card to another. This fee is generally 3% to 5% of the transferred balance and gets applied to your new balance on the balance transfer credit card.
Under normal circumstances, a balance transfer fee may not be worth it. However, when the balance transfer credit card you’re using offers a significantly lower interest rate — some of the best balance transfer credit cards even offer a 0% introductory rate — for a set introductory period, it can provide valuable savings.
Not sure if a balance transfer offer is a good deal or not? You can easily determine this by comparing the interest you’d pay on your current credit card to the balance transfer fee on the balance transfer card. If the fee is less than the interest, it’s worth paying the fee.
Keep in mind, these balance transfer credit cards often require good credit or excellent credit to get approved. If you lack the creditworthiness to get approved, the Tally line of credit1 can help, too.
Tally’s credit line offers a lower interest rate than most credit cards, and you can use it again and again to pay off multiple cards. Plus, Tally will handle all your credit card payments for you. You make just one payment per month — Tally will handle the rest.
1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.90% to 29.99% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.