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Balance Transfer Fee

What exactly is a Balance Transfer Fee?

The balance transfer fee is simply a fee imposed on a borrower by a lender for transferring existing debt from another institution. Credit card issuers often impose this fee when cardholders move balances from one card to another.

Balance Transfer Fee

The fee often is calculated as a percentage of the debtor's total amount transferred. Several lenders may impose nil or reduced balance transfer fees as an introductory offer to entice new clients.

How does a Balance Transfer Fee work?

Anybody who has ever used a credit card must be familiar with the fees and expenditures that come with it. The cardholder is responsible for all charges, interest on outstanding amounts, late payment expenditures, over-limit fees, check return fees, and balance transfer fees.

A balance transfer fee is imposed when a cardholder transfers a balance from one credit card to another. To start a balance transfer transaction, one needs to contact the bank that issued the card to which one is transferring a balance. To do this, the following information will often be requested by the bank:

  • Individual's name
  • Amount to be transferred
  • Card's account number

Balance transfers are routinely used to shift high-interest debt to lower-interest credit cards. This is especially true when a credit card firm offers new customers zero or low interest on balance transfers. A balance transfer check can also be used with a new card or statement to make transfers or other transactions.

The receiving institution or card issuer charges a fee on the total amount at some pre-specified rate. Fees can be imposed as a percentage of the transfer balance (usually between 2% and 5%) or as a fixed cash amount (up to $10 in rare situations), depending on which is larger. For example, if the organization charges a balance transfer fee of 2% or $5 (whichever is more), transferring $300 will cost customers $6 because the 2% rate is calculating a higher balance fee.

The fee is typically shown as a distinct line item below the balance or transfer amount on credit card statements. This sum is often added to other costs in the fees section on the top or first page of the bill statements.

What are the advantages and disadvantages of a Balance Transfer?


  • Helps in repaying debt at a cheaper interest rate: The most appealing aspect of a balance transfer is the possibility of paying off a large debt more quickly at a low or even zero interest rate. This is true as long as the transfer fee and any additional expenses, such as an annual fee, do not exceed the savings from the teaser rate. Due to this reason, it is often recommended to make sure to pay off as much as possible within the promotional period.
  • An opportunity to save money: Customers who save on interest costs have more money in their pockets for other reasons like debt repayment or saving for retirement, vacation, home improvements, or an emergency fund.
  • Enables debt consolidation: If the credit card has a high enough credit limit and a person has a lot of debt, they may use it to consolidate all existing debt into one. Instead of dealing with various creditors and due dates, one may switch to making a single monthly payment.


  • The lender is not concerned with the customer's best interests: The bank believes that by providing customers with a lower introductory rate, they will either not pay off the full sum within the initial time or will incur more debt that will not be paid off before the higher interest rate kicks in. Consequently, no matter how fantastic it seems, the lender may not act in the customer's best interests.
  • Introductory deals shorten the time it takes to pay off debt: To take advantage of zero or near-zero interest rates, the transferred sum must be paid off quickly, even if one has a full 18 months to do so. This implies one will have to invest more money toward debt repayment, limiting the amount available for other responsibilities.
  • One may have to pay extra interest: After the introduction period, the annual percentage rate (APR) increases significantly. One might obtain a far higher interest rate than anticipated, which means they will have to pay more when the standard rate comes in.

Are balance transfer charges worth paying?

Banks and lenders may use transfer fees to get additional funds from customers. Yet, if a person has a substantial quantity of credit card debt with high-interest rates, it may be advantageous.

If a person has a credit card with a 15% APR and a debt of $4,500, a 3% transfer fee would cost $135. Those who kept the balance and paid $101 monthly would pay more than $2,000 in interest and take 65 months to pay it off.

However, one may pay it off and pay $135 in interest. This is feasible, but one would need to spend $784 monthly for six months to cover the $140 in interest. Transferring the debt to a reduced-interest-rate credit card will result in a lower overall interest payment. For example, a 12% interest rate card would take 59 months to pay off. One would pay around a little more than $1,400 in interest, saving $600. Even after deducting the $135 transfer charge (for a total of $1,535), they have paid less interest than one would have on a card with a 15% interest rate.

If there is 0% APR on balance transfers for a specific period, one would have saved even more by paying off the remaining debt on time.

Special Considerations

Credit card companies constantly come up with new and exciting offers to attract new customers as well as retain existing ones. They may, for example, provide low-interest introductory or teaser rates to entice new customers to apply for cards or offer existing customers good credit to transfer balances.

These teaser rates may range from 0% to 5% for a brief time. After the initial phase, the rate often reverts to a greater percentage. The future rate is often broad and varied, such as 15.24% to 25.24%. When the teaser rate ends, the customer's rate is determined by their credit score, prime rate, and Federal Reserve interest rates.

Before accepting an offer, individuals should thoroughly read the terms. The teaser rate and length, as well as the amount of the transfer charge, are crucial. If there is an annual fee, it will be evaluated together with the rate once the teaser period expires.

How to reduce Balance Transfer Fees?

Shopping around is the easiest way to reduce or, in some cases, prevent transfer fees because there are so many credit cards and deals available to choose from. There are thousands of credit unions and banks, each with its own credit cards and terms, so the options are numerous.

To begin, one may seek debt transfer credit cards with low fees. Some cards charge transfer fees of up to 5%. On the other hand, several popular credit cards charge only 3%. In addition, one should also look at the card's specified APR after the promotional period ends. Some credit cards have interest-free periods of 12 to 15 months before incurring a 15% to 22% APR. People should choose the lowest possible APR. One may also negotiate a lesser price with their credit card providers, so give them a call ahead of time to see if they are prepared to discuss. Make a note of this before transferring money, and keep other vendor's card offer information with you to use as bargaining chips.

A Balance Transfer Fee Example

If a balance transfer is being considered, one needs to calculate the entire cost of repaying the present debt over time, both with and without accepting a transfer offer. The relative interest rates, fees, and time required to repay the loan are all important factors.

For example, consider a $10,000 credit card bill with a 20% interest rate translates into an annual interest charge of $2,000-roughly $167 per month. Imagine a credit card firm that gives a 2% promotional interest rate with a 1% debt transfer charge for a 12-month introductory period. Accepting that offer will cost a customer $300 (the $100 transfer charge plus the $200 interest installments). By paying the amount in that one year (introductory period), one would save around $1,700.

The Bottom Line

Balance transfer fees can sometimes tie cardholders having high-balance cards in a transfer carousel, where they pay fees to move debt around without ever repaying it. To take full advantage of a balance transfer offer, the borrower must agree to repay the debt, or at least a portion, before the inaugural offer ends.

When an individual has switched his debt to a card with a reduced interest rate and paid off the principal, and the charge, if any, it becomes worthwhile because, by paying within that time, one would have saved so much more money.

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