Are you curious about what a balance transfer fee is?
A balance transfer is a credit card transaction that moves your debt from one account to another. If you have a high-interest rate on one card, a strategic balance transfer can help you save a lot of money on interest charges.
Moreover, if you have a large credit limit on one card, you can move all your debt to that card. This way, you can make one monthly payment instead of dealing with different credit cards and due dates.
All these benefits come at a price - the balance transfer fee.
In this article, we’ll tell you what a balance transfer fee is, how it works, and how much it costs. We’ll also point you in the direction of some excellent balance transfer credit cards.
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A balance transfer fee is the amount charged when you transfer credit card debt from one card to another. This fee is charged by the credit card company whose credit card you’re transferring your debt to.
The balance transfer fee is normally around 2% to 5% of the total amount you transfer, or a minimum of a few dollars (often $5 to $10), whichever is greater.
Where can you find the balance transfer fee of a credit card?
A credit card company normally displays the fee as a separate line item under the balance transfer amount on credit card statements. They generally add the fee with other fees on the front or first page of the statement.
Note that many credit card companies may charge a low balance transfer fee or none at all as an introductory balance transfer offer for new customers. These promotional periods are when you can really benefit from the balance transfer process.
With this in mind, let’s find out how this transfer fee actually works.
Here’s a quick step-by-step of the balance transfer process and how the fee is added:
Step 1: Initiate a Balance Transfer
First, you need to initiate a balance transfer transaction by contacting the credit card company where your credit card balances will be transferred. If you opt for online banking, the credit card company will ask for some details, including:
- Your name
- The balance transfer amount
- The credit card's account number
- And other necessary information
Sometimes, you can also initiate credit card balance transfers with convenience checks or the checks a card issuer sends you in the mail.
Note: Apart from credit card debt, you can also transfer a personal loan. Do check with your card issuer to confirm if they support personal loan transfers.
Step 2: Wait for the Transfer to Complete
It can take two weeks or longer for your balance transfer to complete.
Once completed, the new credit card issuer usually pays off your old account directly. Since the new card issuer is paying your entire debt on your behalf, it becomes a form of debt consolidation.
The debt from your old account, along with the balance transfer fee, will now reflect in your new credit card account.
As we mentioned earlier, the balance transfer fee is usually around 2% to 5% of the total amount you transfer.
For instance, you make a $900 balance transfer, and your credit card company charges a balance transfer fee of 3% or $5 (whichever is greater). In this case, you'll be charged a $27 balance transfer fee and begin repayment on your new card with an updated balance of $927.
Step 3: Pay the Balance Reflected on the New Card
Lastly, you just have to pay off the balance transfer amount, and the fee added to the new card.
Now, if you’re wondering how much a balance transfer fee will cost at the end of the day, let’s give you a clear idea.
How much a balance transfer fee adds up entirely depends on the terms established by your credit card company and the total amount of debt you transfer.
Balance transfer fees typically add up to between 2% and 5% of the total balance you transfer to your new credit card. So for every $10,000 in debt you shift to a balance transfer credit card, you’ll owe between $200 and $500.
There’s also a minimum balance transfer fee of usually $5 or $10 charged by many credit card companies. If the minimum applies, you may end up paying more in relative balance transfer fees for a small balance transfer like $50 or $100 than a large transfer.
The easiest way to dodge balance transfer fees is to opt for a credit card that doesn’t charge such a fee. This works great, especially if you have a lot of credit card debt that you want to transfer to a low-interest rate card with no annual fee.
The other option is to go for a credit card with an introductory balance transfer offer that may charge you nothing or just a meager fee.
There are multiple factors to consider, including the variable Annual Percentage Rate, annual fee, rewards, credit score, and more.
Let’s discuss them in detail so you can look for a suitable balance transfer card:
1. Check Your Credit Score
If you need a card for credit card balance transfers, first, you should check your credit score. That'll help you pick the right one since most balance transfer credit cards require a good or excellent credit score.
2. Look for 0% Introductory APR
Many balance transfer credit card issuers offer 0% introductory APR or Annual Percentage Rate for over a year. It means there will be no interest charges on your new purchases for a certain period of time, determined by your credit card issuer.
But do read the fine print on the intro Annual Percentage Rate. This way, you’ll know if the card offers a 0% introductory APR on new purchases, qualifying purchases, or credit card balance transfers.
3. Do the Math on Balance Transfer Fees
You can determine whether paying a balance transfer fee is worth it when you do the math. That’s because the fee is 2% to 5% of your credit card debt which you have to pay just once, whereas the average credit card interest rate is approximately 16%.
To make things clearer, use a balance transfer fee calculator to check the amount you’ll save, even after paying the balance transfer fee.
4. Consider the Variable Annual Percentage Rate
The introductory balance transfer offer applies for a limited period. So you should consider the variable APR that your card issuer will charge once the promotional balance transfer period ends.
This is important because if you can’t pay off your credit card debt within the intro APR period, you won’t want to be stuck paying a hefty variable APR.
5. Look for Credit Cards with Usable Offers
You should also see if the card you’re looking into provides benefits and rewards that you may actually use beyond the balance transfer offer. For instance, a balance transfer credit card with airline mile rewards sounds perfect if you travel often.
The Citi Custom Cash℠ Card can be a great choice since it offers cash back rewards for everyday purchases like groceries and restaurants while adjusting to your spending habits.
6. Look for a $0 Annual Fee
No annual fee will reduce the overall charges you need to pay. It’s also an expense-related consideration to make if you’re applying for a card only to transfer credit card balances.
For example, the Citi Simplicity® Card is a great option that charges no annual fee and offers a 0% introductory balance transfer APR of 21 months.
A balance transfer credit card that fits most or all of these criteria could help you pay your debt without any interest charges.
So what are some cards you should consider?
Here are some great credit card options.
They offer a low or 0% balance transfer APR, along with other offers on cash advance fees, cash back rewards, qualifying purchases, or new purchases:
Is Balance Transfer a Good Idea?
Credit card balance transfers can help you save a ton of money by consolidating all your debt into a new credit card.
But before you initiate a transfer, look at the balance transfer fee details.
Ensure that the fee is low or that the card offers a 0% balance transfer APR offer, at least during the introductory period. Additionally, check if the card supports your kind of debt transfer, such as a credit card balance or personal loan.
Ultimately, each credit card with a promotional balance transfer will have unique terms and other fees. Some of them include a cash advance fee, credit limit, foreign transaction fee, variable APR, cash back rewards scheme, and more. So do thorough research before settling.
If you’d like to apply for a credit card with a low or 0% intro APR on credit card balance transfers, check out our list of the best balance transfer credit card options.