A credit card balance transfer fee is a fee you pay if you transfer a balance from one credit card to another one. You typically have to pay a one-time balance transfer fee, usually between 3% and 5% of the transfer amount, for the privilege.
Most issuers will also stipulate a minimum amount for a balance transfer fee, like $20. (So if 3% of the balance transfer amount is lower than $20, you'll be charged the minimum amount of $20.) While some card issues may offer a promotion that waives the balance transfer fee altogether, such promotions are becoming rarer.
When to Consider a Balance Transfer
If you're unhappy with your credit card—maybe because you don't like the terms, or the interest rate is too high—you might want to consider transferring the balance to another credit card you like better.
When you initiate a balance transfer, you are moving your credit card debt from one card to another. This can help you pay down your debt faster because you can snag a lower interest rate, reducing the additional charges you'll pay on your balance. You might even find a card that offers a 0% rate for a certain period, generally ranging between 6 and 24 months.
When considering a balance transfer, you should also evaluate carefully whether you will be able to make the payments on the new account on time every month. If not, you could be setting yourself up for failure, because a late or missed payment may result in an increased interest rate as a penalty—which could wipe out the savings. And if you're taking advantage of an introductory rate, you should make certain you can pay off the transfer amount during that introductory period. That's because the card might jump to very high interest rates once that period ends.
Should I Make a Balance Transfer If I'm Being Charged a Fee?
When you're deciding whether to make a balance transfer, you should take into account the cost of the fee as you decide if the transfer is the right deal for you. Say you want to transfer a $3,000 balance to another credit card with a lower interest rate in order to pay down the debt faster. If the balance transfer fee is 5%, that means you'll pay $150 to make the switch.
If you won't save at least $150 in interest charges by making the balance transfer, then it's not worth it. But if you save more than that, thanks to a significantly lower interest rate on the new credit card, you'll come out ahead in the end.
For example, say the interest rate on your current credit card is 22%, and you are able to pay $100 a month toward your $3,000 debt. At that rate, it will take you 44 months to pay off your debt, and you will have paid $1,395.44 in interest charges when you are done.
If you can transfer that $3,000 debt to a card that charges 9% interest and you still pay $100 toward your debt each month at that lower interest rate, you'll be able to pay off your debt nine months sooner, and you'll only pay $411.33 in interest. Given the savings, it's a no-brainer to pay the balance transfer fee of $150, because you'll still save in the long run (assuming of course, there are no other fees).
Can I Avoid a Balance Transfer Fee?
There are some cards that waive the balance transfer fee altogether, such as the Barclaycard Ring Mastercard, which offers a variable APR starting at 10.49%. Such cards are less common. For the best deals, research and compare cards in the balance transfer section in Experian CreditMatch.
Some credit card issuers offer a balance transfer fee waiver if you initiate the transfer within the first few months of opening the card. The BankAmericard, for example, offers an attractive 0% interest rate for the first 15 billing cycles—and charges no balance transfer fee for the first 60 days your account is open. Another option is to look into cards offered by credit unions, which may waive balance transfer fees as well.
Finally, it's also worth taking the time to call your current credit card issuer to see if you can negotiate a lower fee or even a fee waiver altogether. Credit cards may have other fees in addition to balance transfer fees such as an annual fee, convenience fee, or foreign transaction fees. You'll want to consider all fees and interest rates before choosing a new credit card.