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Balance Transfers

Understanding Balance Transfer Fees

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When you're trying to pay down high interest credit card debt, it can be discouraging to see the interest add up every month. If you're having trouble making progress, the right balance transfer credit card could help you tackle your debt by stopping interest charges temporarily.

Balance transfer cards let you move outstanding balances onto a credit card that offers a low or even 0% annual percentage rate (APR) for a certain period, generally six to 18 months. You'll typically pay a balance transfer fee that's a percentage of the amount you transfer, but the money you'll save on interest will likely outweigh the cost of the fee.

How Do Balance Transfer Fees Work?

Balance transfer credit cards often have low percentage teaser interest rates, also called introductory rates, that credit card companies offer to entice new signups. These rates can be as low as 0%; however, after the introductory period ends, your APR will revert to a higher percentage. As a tradeoff for the low or 0% APR, you'll typically need to pay a balance transfer fee on any balances moved to the new card. Before you apply for a balance transfer card, it's a good idea to calculate exactly what the fee(s) will be and how long the low interest period will last.

You can find a card's balance transfer fee on the card issuer's website or in the "rates and fees" or "terms and conditions" documents when you're applying. (It will also be included in the documentation that's mailed to you with your new card.) Balance transfer fees can vary, but are usually either 3% or 5% of the transferred amount.

Once you're approved for a balance transfer card, you can transfer an outstanding balance to it from your existing credit card (or cards) or even use it to pay outstanding loans. The balance transfer card issuer either pays your credit card company or lender directly or issues a check you can use to pay off your balance. The fee for each balance transfer will be added to the balance on your new card.

In most cases, the savings from reduced interest will outweigh the balance transfer fee, as long as you pay off the transferred balance before the introductory rate expires. Before applying for a balance transfer card, create and commit to a plan to pay off your balance before your interest rates increase.

How to Avoid Balance Transfer Fees

The only way to completely avoid balance transfer fees is to choose a credit card that waives the fee. Cards without a balance transfer fee may be hard to come by, but you may be able to find these promotions from time to time.

If you can't find a card without a balance transfer fee, the key factors to compare are the length of the 0% APR offer, the size of the balance transfer fee, and whether the card charges an annual fee. You should also consider the interest rate you'll pay once the introductory offer expires, as well as any other fees the card may charge, such as late fees, cash advance fees or fees on foreign transactions.

Once you know all the fees, do the math to assess how much a balance transfer card will cost you. For example, depending on the amount you plan to transfer, a card with a 5% balance transfer fee but no annual fee might actually cost less than a card with a 3% balance transfer fee and a $95 annual fee.

To qualify for most balance transfer cards, you'll need good to excellent credit scores. If your score is in the good to exceptional range, consider the Citi® Double Cash Card - 18 month BT offer. However, there's no introductory APR on purchases. In fact, you'll accrue interest on any new charges unless you pay your entire balance—including balance transfer amounts—by the due date each month, so it's best to use this card only for balance transfers, not purchases.

Find the Right Balance Transfer Card

To get a better idea of which balance transfer cards you may qualify for, review your credit report and check your credit score. Knowing your credit score will help you pinpoint the best balance transfer card for your situation. You can also use Experian CreditMatch™ to be paired with credit cards that could work well for you. If you have a good to excellent credit score, you may even be able to negotiate a lower fee with your credit card issuer. (It never hurts to ask!)

A balance transfer card can be a useful tool for paying down high interest debt. By choosing the right balance transfer card and paying off your balance before the introductory APR expires, you can reduce the amount of interest you're paying, lower your monthly payments and get out of debt faster.

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