Balance Transfer Fees Explained: Are They Worth It?

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.

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.

If you're wondering what is a balance transfer credit card, it's a type of card designed specifically for balance transfers. These cards often feature a 0% introductory APR for a set period, allowing you to pay down debt without accumulating additional interest.

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 save a few bucks. Understanding how Fed Rate Cuts affect your credit card APR can help you time your balance transfer for maximum savings. 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. All of these factors should be considered in light of your overall credit card financial goals. "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."

Having a plan for the repayment period is just as important as correctly following the initial balance transfer steps.

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 one with the annual fee 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 company 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, have 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. For strategies on what to do if you still have a balance as your promotional period approaches, see our guide on handling expiring intro APR offers.

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.