What Is a Balance Transfer Fee—and Can You Avoid It?

What Is a Balance Transfer Fee?

A balance transfer fee is the amount of money a lender charges a borrower to transfer existing debt from another institution. This fee is commonly charged by credit card companies when cardholders move balances from one card to another.

The fee is usually a percentage of the total amount transferred by the debtor. Many lenders may charge no or low balance transfer fees as introductory offers to attract new customers.

How Does a Balance Transfer Fee Work?

If you've ever used a credit card, you are probably well aware of all the fees and costs associated with owning one. As a cardholder, you're responsible for any charges you incur, the interest you accrue on any outstanding balances, late payment fees, over-limit fees, check return fees, and balance transfer fees.

Balance transfer fees are incurred whenever a cardholder transfers a balance from one credit card to another. To initiate a balance transfer transaction, you must contact the company that issues the card you're transferring a balance to. That company will ask for some details:

• Your name
• The amount to be transferred
• That card's account number

People often use balance transfers to move high-interest debt to cards with lower interest rates. This is especially true when the credit card company makes an introductory offer or no or low interest on balance transfers for new customers. Alternatively, you can use a balance transfer check, which comes with your new card or statement for transfers or other uses like purchases.

The institution or card company that receives the balance is the one that charges the fee. Fees may be charged as a percentage of the transfer balance (usually between 2% and 5%) or a fixed dollar amount (as much as $10 in some cases), whichever is greater. For instance, if your company charges a balance transfer fee of 2% or $5 (whichever is greater), you'll be charged $6 for a $300 balance transfer because the 2% fee was greater.

Credit card companies normally display the fee as a separate line item just below the balance transfer amount on credit card statements. This amount is generally added with other fees on the front or first page of the statement under the fees section.

Special Considerations

Credit card companies make offers to new and valued customers all the time. For example, they may offer low-percentage introductory or teaser interest rates, enticing new consumers to apply for cards or existing customers with good histories to transfer balances.

These teaser rates can be as low as 0% to 5% for a certain period. The rate typically reverts to a higher percentage after the introductory period ends—generally 12 to 21 months. The lender discloses the future rate usually as a broad and variable range, such as 15.24% to 25.24%. The rate the customer pays when the teaser rate expires depends on their credit rating, the prime rate, and interest rates set by the Federal Reserve.

Wise consumers look carefully at the terms before deciding to take up an offer. The teaser rate and how long it lasts are essential, as is the transfer fee amount. The annual fee, if any, also should be factored in along with the rate after the teaser ends.

Advantages and Disadvantages of a Balance Transfer

Advantages Explained

• Allows you to pay off debt at a lower interest rate: The biggest allure of a balance transfer is the opportunity to pay off a substantial debt more quickly at a low or even zero interest rate. This is true as long as the transfer fee and any other charges, such as an annual fee, don't cost more than you save over the term of the teaser rate. Just make sure you pay off as much as you can during the introductory period, if possible.
• Provides an opportunity to save money: Saving money on interest charges allows you to put more money into your own pocket for other purposes, such as paying the debt down or saving for retirement, vacation, renovations, or an emergency fund.
• Allows you to consolidate all your debt: If you have a lot of debt and a large enough credit limit on your card, you can use it to consolidate all your debt into one. This allows you to make a single payment monthly rather than having to deal with different creditors and due dates.

Disadvantages Explained

• The lender doesn't have your best interests at heart: By offering you the lower introductory rate, the bank has one thing in mind; it believes you won't pay off the entire balance during the introductory period, or at the very least, you'll take on more debt that won't be paid off before the higher interest rate kicks in. So as good as it seems, your lender doesn't necessarily have your best interests in mind.
• Introductory offers decrease the amount of time to pay down your debt: Keep in mind that you are under pressure to pay off the transferred balance within a short amount of time if you want to take advantage of zero or near-zero interest rates, even if you have a full 18 months to do so. This means you'll have to put more money toward paying your debt, reducing the amount you have for other obligations.
• You may have to pay more interest: Your annual percentage rate (APR) is rolled over to a much higher one after the introductory offer. In some cases, you may end up with a much higher rate than expected, which means you'll have to pay more interest when the regular rate kicks in.

Are Balance Transfer Fees Worth It?

Balance transfer fees might seem like another way banks and lenders try to take more money from you, but if you have a significant amount of credit card debt with high interest rates, it could be worth it.

For example, if you had a credit card with an APR of 15% and had a balance of $4,500, a transfer fee of 3% would cost you $135. But if you kept your balance and made $101 payments monthly, you'd pay more than $2,000 in interest, and it would take 65 months to pay it off.

But maybe you could pay it off and only pay $135 in interest. This is possible, but you'd need to pay about $784 monthly for six months to pay $140 in interest. Transferring your balance to a lower interest-bearing card would reduce the amount of interest you pay overall. For instance, a card with a 12% interest rate would take you 59 months to pay off. You'd pay a little more than $1,400 in interest—a reduction of about $600. Add in the $135 (totaling $1,535) transfer fee, and you've still paid less interest than on the card with a 15% rate.

Several credit cards give you 0% APR on balance transfers for a specific period. If you were to transfer your balance to a card with no APR for one year and a lower rate than you had previously, you could save a lot of money.

Credit Cards With No Balance Transfer Fees

Many credit cards allow you to transfer balances without fees or interest for up to 21 months. Several advertise no APR for a specific time on transfers, but many carry a 3% balance transfer fee. Other cards have a limited timeframe for transferring a balance without fees. Here are some cards with no transfer fees, 0% APR, and one with transfer fees after an introductory period.

How to Avoid or Decrease Balance Transfer Fees

Because there are so many credit cards and offers to choose from, the best way to reduce or not have to pay transfer fees is to shop around. You'll find thousands of credit unions and banks in the U.S., each with their own credit cards and terms—so there is no shortage of options.

First, look for cards with low balance transfer fees. Some cards have fees higher than 5%, but many popular cards have 3% transfer fees. Second, look at the card's APR after the introductory period has ended. Many cards give you 12 to 15 months of no APR and then kick in a 15% to 22% APR after the time is up. You want to find one with the lowest APR possible. For instance, the Wings Visa Platinum has variable rates of 9.54% to 18.00%—the better your credit, the lower your rate will be.

You might be able to negotiate a lower fee with a card provider, so call them in advance to see if they are willing to talk. Ensure you do this before transferring your balance, and make sure you have information on other cards to use as bargaining chips.

Example of a Balance Transfer Fee

If you're considering a balance transfer, you should calculate the total cost of repaying the current debt over time, with and without accepting a transfer offer. Factors include the relative interest rates and fees and the amount of time it will take to repay the total debt.

For example, a credit card balance of $10,000 at a 20% interest rate results in an annual interest expense of $2,000—about $167 per month. Suppose a credit card issuer offers you a promotional interest rate of 2% for an introductory period of 12 months, with a balance transfer fee of 1%. If you take that deal, the total cost of moving the entire $10,000 is $300 (the transfer fee of $100 plus interest payments of $200). You would save $1,700 in that year by transferring your balance.

Frequently Asked Questions

The Bottom Line

Balance transfer fees can mean that cardholders with chronic balances end up on a transfer carousel, paying fees to move debt around without ever actually repaying it. The only way to take full advantage of a balance transfer offer is to commit to paying off the debt or as much of it as possible before the introductory offer expires.

When you've transferred your debt to a card with a lower rate and paid the principal down, the fee—if you've paid one—becomes worth the effort and money because you've saved much more by doing the transfer.