Balance Transfer Fee: What It Is and How to Avoid It

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Balance Transfer Fee – If you have credit card debt that you want to pay off faster and save money on interest, you may consider transferring your balance to another card with a lower or zero interest rate. This can be a smart move, but it may also come with a cost: a balance transfer fee.

A balance transfer fee is a charge that you have to pay when you move your debt from one credit card to another. It is usually a percentage of the amount that you transfer, typically between 3% and 5%, with a minimum of $5 to $10. For example, if you transfer $1,000 to a new card that charges a 3% balance transfer fee, you will have to pay $30 for the transaction.

In this article, you will learn:

  • Why credit card companies charge balance transfer fees
  • How to calculate the cost and benefit of a balance transfer
  • How to find cards with low or no balance transfer fees
  • How to avoid balance transfer fees altogether

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Why credit card companies charge balance transfer fees

Credit card companies charge balance transfer fees for two main reasons: to make money and to discourage abuse.

To make money

Credit card companies make money by charging interest on the balances that you carry on their cards. When you transfer your balance to another card with a lower or zero interest rate, they lose that income. To compensate for that loss, they charge you a fee upfront for the privilege of transferring your debt.

To discourage abuse

Credit card companies also charge balance transfer fees to prevent customers from taking advantage of their promotional offers. Some cards offer 0% APR on balance transfers for a limited time, usually between 12 and 21 months. This means that you can pay off your debt without paying any interest during that period. However, some customers may try to abuse this offer by transferring their balance multiple times or by using the new card for purchases instead of paying off their debt. To discourage this behavior, credit card companies charge a fee for each balance transfer.

How to calculate the cost and benefit of a balance transfer

Before you decide to transfer your balance to another card, you need to weigh the cost and benefit of doing so. The cost is the balance transfer fee that you have to pay, while the benefit is the interest that you save by paying off your debt at a lower or zero rate.

To calculate the cost and benefit of a balance transfer, you need to know:

  • The amount that you want to transfer
  • The interest rate on your current card
  • The interest rate on your new card
  • The balance transfer fee on your new card
  • The length of the promotional period on your new card (if any)

Here is an example of how to calculate the cost and benefit of a balance transfer:

Suppose you have a $5,000 balance on a card that charges 18% APR. You want to transfer it to a new card that offers 0% APR on balance transfers for 15 months but charges a 3% balance transfer fee.

The cost of the balance transfer is:

$5,000 x 0.03 = $150

The benefit of the balance transfer is:

$5,000 x 0.18 x (15 / 12) = $1,125

This is the amount of interest that you would have paid on your current card if you did not transfer your balance and paid it off in 15 months.

The net benefit of the balance transfer is:

$1,125 – $150 = $975

This is the amount of money that you save by transferring your balance and paying it off in 15 months.

As you can see, in this case, the benefit of the balance transfer outweighs the cost. However, this may not always be true. If the interest rate or the balance transfer fee on your new card is higher, or if the promotional period is shorter, you may end up paying more than you save.

Therefore, it is important to compare different cards and offers before you decide to transfer your balance. You can use online calculators or tools like Credit Karma’s Balance Transfer Calculator to help you with this process.

How to find cards with low or no balance transfer fees

If you want to save more money on your balance transfer, you should look for cards that charge low or no balance transfer fees. These cards are not very common, but they do exist.

Some examples of cards with low or no balance transfer fees are:

  • Amex EveryDay® Credit Card. This card offers 0% APR on balance transfers for 15 months and charges no balance transfer fee if you request the transfer within 60 days of account opening. It also offers rewards on purchases and has no annual fee.
  • Chase Slate®. This card offers 0% APR on balance transfers for 15 months and charges no balance transfer fee if you request the transfer within 60 days of account opening. It also has no annual fee but does not offer rewards on purchases.
  • BankAmericard® Credit Card. This card offers 0% APR on balance transfers for 18 billing cycles and charges no balance transfer fee if you request the transfer within 60 days of account opening. It also has no annual fee but does not offer rewards on purchases.

When looking for cards with low or no balance transfer fees, you should also pay attention to other factors, such as:

  • The interest rate after the promotional period
  • The annual fee
  • The rewards program
  • The credit limit
  • The credit score requirement

You should choose a card that suits your needs and preferences, and that you can qualify for based on your credit history and income.

How to avoid balance transfer fees altogether

If you want to avoid balance transfer fees altogether, you have two main options:

Pay off your debt without transferring it

If you can afford to pay off your debt in full or in large chunks, you may not need to transfer it to another card. You can use strategies like the debt snowball or the debt avalanche to pay off your debt faster and save money on interest. You can also try to negotiate a lower interest rate with your current card issuer or look for other ways to reduce your expenses or increase your income.

Use a personal loan instead of a credit card

If you have good credit and a stable income, you may be able to get a personal loan with a lower interest rate than your current credit card. A personal loan is a lump sum of money that you borrow from a bank, credit union, or online lender, and repay in fixed monthly installments over a set period of time. Unlike a credit card, a personal loan does not charge a balance transfer fee or have a variable interest rate. However, it may charge other fees, such as an origination fee or a prepayment penalty. You should compare the total cost of a personal loan with that of a balance transfer before you decide which one to use.

In conclusion, A balance transfer fee is a charge that you have to pay when you move your debt from one credit card to another. It is usually a percentage of the amount that you transfer, typically between 3% and 5%, with a minimum of $5 to $10.

A balance transfer can help you save money on interest and pay off your debt faster, but it may also come with a cost. You should weigh the cost and benefit of a balance transfer before you decide to do it. You should also look for cards that charge low or no balance transfer fees, or consider other alternatives to avoid them altogether.

Frequently Asked Questions (F&Qs)

What is a 4% balance transfer fee?

A 4% balance transfer fee is a fee charged by a credit card issuer when you transfer a balance from one credit card to another. The fee is typically a percentage of the amount of the balance that you transfer. For example, if you transfer a balance of $1,000 and the balance transfer fee is 4%, you will be charged $40.

Is 3% a good balance transfer fee?

A 3% balance transfer fee is considered to be a good deal. Many balance transfer cards charge 4% or 5% in fees, so a 3% fee can save you money. However, it is important to compare different offers before you choose a balance transfer card. Some cards offer longer introductory periods or lower balance transfer fees, so you may be able to find a better deal.

Does Visa have balance transfer fees?

Visa is a payment network, and as such, it does not charge balance transfer fees. However, individual credit card issuers that use the Visa network may charge balance transfer fees. The amount of the fee will vary depending on the issuer and the terms of the credit card.

How long does a balance transfer take?

A balance transfer can take anywhere from a few days to several weeks, depending on the credit card company. Most balance transfers are completed within 5 to 7 business days, but some may take longer.

Do balance transfers have a limit?

Yes, balance transfers have a limit. The limit is typically the credit limit of the new card, but it may be lower depending on your creditworthiness. Some cards may also have a maximum balance transfer amount, such as $10,000 or $20,000.

How many times can you balance transfer?

There is no limit on how many times you can balance transfer, but there are some restrictions.

Are balance transfer fees monthly?

No, balance transfer fees are not monthly. They are a one-time fee that is charged when you transfer a balance from one credit card to another. The fee is usually a percentage of the amount you are transferring, and it is typically between 3% and 5%.

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