What is a Balance Transfer Fee?

If you’re looking for a way to make your credit card debt feel more manageable, you may be considering taking advantage of a credit card with a balance transfer offer. A balance transfer is the process of moving existing credit card debt to another card, usually to take advantage of a promotional low or 0% annual percentage rate (APR) offer.

Credit card issuers typically charge a fee for each balance transfer, which you’ll need to factor into your budget. Let’s take a closer look at how a balance transfer fee works, what one typically costs and other details you need to decide whether a balance transfer could be the right choice for you.

How does a balance transfer fee work?

A balance transfer fee occurs when you transfer an existing balance (or more than one) to a different credit card account. The fee is a one-time cost tied to the balance transfer process and is separate from any interest (cost of borrowing) charges you may incur.

Rather than billing you separately, the card issuer adds the fee to each transferred balance on your new card.² That means the amount you owe on the new card will be slightly higher than the transferred balance.

How much does a balance transfer fee typically cost?

A balance transfer fee is typically calculated as a percentage of the transferred amount — usually 3 or 5%.³ Some issuers also set a minimum fee, in which case you’d pay either the percentage-based fee or the minimum fee, whichever is higher.

Here's how that might look in practice: Say you transfer a balance to a card with a 5% fee or a minimum fee of $10.

• If you transfer a balance of $1,000: The fee would be $50, and your new balance would be $1,050.
• If you transfer a balance of $100: The fee would be $10, and your new balance would be $110, because 5% of $100 is only $5 — less than the minimum fee.

It's also worth noting that a minimum flat fee can make a small transfer more expensive. In the case of the $100 balance transfer example, you end up paying a 10% cost for that transfer.

Fees vary by issuer and offer, so review the terms of your credit card carefully before completing a balance transfer.

Can you avoid paying a balance transfer fee?

Avoiding a balance transfer fee is possible, but finding a card issuer that doesn’t charge one could be difficult. Some credit unions may allow you to transfer a card balance without charging a transfer fee, but you may need to be a member to qualify.⁴

Some card issuers may charge a lower balance transfer fee if you complete the transfer within a promotional period, such as the first 60 days after opening the account.⁵ Offers vary, so review the card’s terms carefully to make sure you understand when fees apply.

To avoid a balance transfer fee, consider other ways to pay off your credit card debt. For example, you could use a debt consolidation loan to pay off your credit cards right away, then repay the loan in predictable monthly payments over time. You could even prequalify online to get an idea of the terms you may be eligible for. It’s important to note that a loan typically doesn’t come with the same kind of low or 0% promotional rate that a credit card might.

Is paying a balance transfer fee worth it?

A balance transfer fee is worth paying if the money you'd save on interest during the offer period outweighs the cost of the fee. Whether that math works in your favor depends on factors like:

• The size of your balance: If the debt you want to transfer is small, the balance transfer fee could end up costing more than what you'd save on interest.
• The length of the promotional period: If you can't pay off enough of the transferred debt before the promotional period ends, you may not save enough interest to outweigh the fee.
• Whether you plan to use the card to make new purchases: If you add new charges to the card after transferring a balance and you don’t pay them off every month, you could end up with more debt than you started with, making the fee an added cost with little benefit.

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Weigh the costs before you transfer your balance

A balance transfer fee is a small cost to factor in when deciding how to manage credit card debt. To weigh the effectiveness of a balance transfer, consider how much you owe, how long it may take to pay the transferred balance off and whether you're likely to do so before the promotional period ends.

Sources

1 https://www.cnbc.com/select/what-is-balance-transfer-how-to-do-one/
2, 3, 4 https://www.bankrate.com/credit-cards/balance-transfer/what-is-a-balance-transfer-fee/
5 https://www.nerdwallet.com/credit-cards/learn/what-is-a-balance-transfer-fee-on-a-credit-card