What is a Credit Card Balance Transfer Fee? 

Perhaps you like to carry a credit card balance from month to month and have a plan to pay it off a little at a time.

Well, if you decide to make a few minimum payments and your balance starts to creep up, the interest charges on your balance will also rise like the tide. Many people have found themselves in that situation, and that’s why balance transfers have become such a popular option.

A balance transfer is when you move your high-interest balances to a new credit card that offers a much lower, or even 0%, interest rate for a certain period. This gives you a second chance to pay off those balances — just like you planned the first time. But few things in finance come free, which is why balance transfers come with costs.

Credit card issuers charge balance transfer fees for the privilege of moving your balance to a card with a lower APR — sometimes even 0% — for a certain period. 

A balance transfer fee is the cost your credit card issuer adds for transferring your debt from one credit card to another. The typical charge is 3% to 5% of the balance you transfer, depending on the card. Keep this fee in mind before you start shuffling your debt around like the deck at your Thursday night poker game.

When you do a balance transfer, You move debt from another credit card, most often to get a better interest rate. To do this, you give the new credit card company information about your old ones.

That new company goes ahead and pays off your old card, then transfers that balance onto your new card, sometimes giving you a reduced or even 0% interest rate for a spell.

Balance transfers can work all kinds of magic on the wallet. The most common reasons to do these include saving on interest charges, getting all debt under one roof, or taking advantage of some promotional offers dangled in front of you. 

Obviously, keeping interest rates at a minimum really shaves the cost of carrying the balance and makes it much easier to keep on top of your debt. If you juggle several credit card debts with different due dates, rolling them into a single payment makes budgeting a whole lot simpler and reduces the chances of forgetting to make a payment.

Credit card companies just adore reeling people in with promotional deals, offering sign-up bonuses and lower interest rates. Balance transfer deals usually include a 0% intro APR for a set time and may even, on the rare occasion, sweeten the pot with a lower fee.

This deal can save you a pretty penny as long as you repay your balance before the promotion kicks the bucket. Just read all the fine print and know what you’re signing up for so you don’t get hit with any extra costs.

Now, when it comes to the balance transfer fees, those can be as varied as the shoofly pies at a potluck picnic. Let’s see what’s out there.

Percentage-Based Fees

The most common form of balance transfer fee is percentage-based. Credit card companies usually like to keep the charges coming in somewhere between 3% and 5% of whatever debt you’re moving over. OK, so for argument’s sake, let’s say that you shift a $5,000 balance onto a new card, complete with a 4% fee. Well, that’s going to hike your cost just for the privilege of the transfer to a cool $200.

If you are doing a good number of transfers, these fees can start piling up faster than eggs in a henhouse. Best to tally up the total cost before you let those eggs hatch.

You’ll often find these fees advertised as a percent of the amount you’re moving, which makes comparing offers as easy as pie. For instance, on a $10,000 transfer, a 3% fee will run you $300, while a 5% fee will set you back $500. Be certain to weigh this fee against your promotional interest rate to make sure you’re really going ro save some green by moving your balance. 

This chart shows a few balance transfer savings scenarios for a 0% introductory APR card with a 3% transfer fee compared to a credit card with a 20% APR:

Most card companies will also slap on a minimum balance transfer fee just to cover themselves in case of smaller transfers. Even if the percentage comes out to peanuts, they’re still going to make sure they get a little something for their troubles. This minimum fee is normally a flat rate, such as $3 or $10, to make sure they’re not losing money on the deal.

For example, say you’re transferring a $100 balance to a new card that charges a 3% fee for the transfer that’s a scant $3. But not so fast! The card may slap on a minimum $10 fee for such transfers. So small transfers can really bite, making them far more expensive than big ones if you go by percentages.

Flat Rate Fees

Some of these fees don’t bother with percentages. They’re just flat fees, regardless of how much of a balance you’re moving. This can be a really great option if you move a big balance since the flat fee could end up being cheaper than those pesky percent-based fees.

For example, a card might charge a $75 flat fee for any transfer, which is much friendlier to the wallet if you’re moving a barrel of debt.

Flat-rate fees don’t require much figuring and make budgeting easier. If you like to know just what you’re getting yourself into, this may be the way to go. Be sure to add up all the total costs–including interest rates and any other charges–so you can pick the fee structure that’s going to fit your situation best.

Other Promotional Balance Transfer Fees 

Promotional balance transfer fees are like dangling a carrot in front of a horse–it reels in new customers. Most of these deals come with little to no interest for a while, trying to tempt you with a sweet offer.

For example, a card might wave goodbye to the balance transfer fee for the first 60 days after you open an account. But after that, the regular balance transfer fee kicks in.

Now, while these promotions can save you some serious cash, you’ve got to keep your eyes peeled for all the fine print. Most of the time, those promotional rates only apply to balances transferred within a certain time frame.

“A card might wave goodbye to the balance transfer fee for the first 60 days after you open an account. But after that, the regular balance transfer fee kicks in.”

Once that window closes, the standard fees and interest rates creep back in. Make sure you understand all the terms so you can wrangle every bit of savings without getting hit with any surprise charges.

Balance transfer fees will not take much of a chunk out of your wallet unless, of course, you’re transferring a lot of debt. Nonetheless, you need to know how they can affect the overall big picture.

Effect on Credit Utilization Ratio

The biggest piece of your FICO credit score puzzle includes how much you owe. It includes something called your credit utilization ratio, or CUR. That just means how much credit card debt you have compared to your total credit limit.

The lower the number, the better you look to lenders because it shows you are not using up all of your available credit.

Both FICO and VantageScore, the biggest players in credit scoring, want you to keep that ratio below 30%. The lower you keep it, the more your score’s going to benefit because you’re showing that you’re on top of your debt.

A balance transfer can mess with your credit utilization ratio in all kinds of ways. If that new credit card you’re transferring to has a higher credit limit, it may just cause your overall utilization ratio to drop, which is powerful good news for your credit score.

But hold on! If you’ve already maxed out your credit line or if your new card’s got a lower limit, you could still be sitting with a high CUR, and that’s going to keep weighing down your score.

Calculating your CUR is much easier than solving calculus problems. 

Here’s a chart that shows an example of credit card balances before a balance transfer to Card C, which the borrower is considering:

As you can see, the credit utilization ratio is getting close to 50%, which can significantly impact a borrower’s credit score.

Here is that calculation after the borrower is approved for Card C and transfers the other two balances:

As you can see, the CUR is now much closer to the recommended 30%. This can be an excellent short-term way to get some breathing room, but the real magic happens in paying down that balance during the promotional period, lowering your CUR over time and rocketing your credit score like a starship at warp speed.

All this means that you want to keep the CUR low for most of your cards. Balance transfers can be a helpful little tool in keeping that ratio at a decent level, but you really need to apply your brainpower. And let me remind you, once you have paid off the balance on Card A, don’t fall for the temptation of running up new debt.

Your CUR will start going up faster than a helium balloon, and it can help push down your credit score along the way.

Effect of Fees on Large Balance Transfers

When you’re thinking about a big balance transfer, the million-dollar question is: Will the low interest rate save you enough to make the transfer fee worth the bother?

Let’s break this down with an example.

So, in this case, it’s a no-brainer: Paying that $1,000 fee sure beats shelling out over six grand in interest, doesn’t it?

Managing Debt After a Balance Transfer

Once you’ve pulled off your balance transfers, you’d better have a solid plan — and be able to stick to it.

First of all, you want to make a detailed and realistic repayment plan. That means it’s high time for you to budget enough money to start paying off that transferred debt, especially since it’s got a low interest rate only during the promotional period. 

Make use of the available tools at your disposal, such as automatic payments, to meet your due dates because if you miss one payment, trouble’s sure to follow.

But here’s the critical piece of wisdom: Don’t charge up new debt while you’re trying to pay off that transferred balance. In fact, don’t even think about using the card you just paid down for new purchases because that’ll wash out all your hard work faster than a rainstorm at a picnic.

You might want to hit the brakes on using other credit cards, too, till you’re on top of your debt. Stick with a disciplined plan, and you will be hightailing it toward financial security.

Make sure you knock out that balance before the 0% APR promo period ends. Once that time’s up, regular interest will kick in, and it’s going to be a whole lot higher. Paying it off within the promo period saves you from higher interest charges and keeps more money in your pocket.

Reducing your debt as quickly as possible also will lower your credit utilization ratio and give your credit score a nice boost. Tackling transferred debt requires a clear plan, tight financial discipline, and the fastest paydown possible. Follow these steps, and you’ll be clearing your debt and setting yourself up for better financial health quicker than politicians break promises.

Pros and Cons of Closing an Account After a Balance Transfer 

Deciding whether to close a credit card account after a balance transfer is not as simple as throwing a horseshoe. You have to weigh your options against each other before you make a move. Let us take a look at both sides of the fence.

Pros

• Eases the Process of Financial Management: Closing a credit card account makes tracking easier. You’ll be streamlining your budget with fewer accounts to go around, reducing the chances of payment oversights.
  
• Eliminates the Temptation to Reuse: If you’ve got the hankering to spend too much, closing the account removes the urge to churn up more debt on that old card. This is a smart thing to do when you have trouble sticking to a budget.

• Possible Annual Fee Savings: If that card that you are closing comes with an annual fee, then you save some money by getting rid of it. You can take those savings and throw them toward paying down your other debts or use them for other goals.

Cons

• Negative Effect on Credit Utilization Ratio: Closing a credit card reduces your available credit and may send your credit utilization ratio up faster than you squirrel up a tree. And the higher it goes, the more grief it gives your credit score. Suppose you have $10,000 in available credit and use $2,000; that is a 20% credit utilization ratio. But when you close a card with a $5,000 limit, your credit utilization ratio shoots to 40%, and that isn’t good.
  
• Possible Lowering of Credit Score: Closing an account doesn’t just mess with your credit utilization ratio. It can also shorten the average age of your credit accounts. That’s another big factor in your credit score. Generally speaking, the longer you’ve had accounts in your name, the better. Closing older accounts makes it seem like your accounts are new, and that can ding your score.
  

• Loss of Rewards and Benefits: So many of today’s credit cards have invested in giving rewards through cash back, travel points, and even purchase protection. Close the account, and you’re cutting yourself off from those rewards. You may want to rethink losing those perks.
  
• Less Financial Flexibility: If you have multiple credit cards, you have a fallback in case of emergencies or perhaps an expense you didn’t budget for. Closing a card reduces your available credit, and if something hits the fan, you will have less leeway. 

If you can cut down those annoying balance transfer fees, then you will save yourself a nice chunk of change and knock out some debt while you’re at it. Here’s how you can do just that.

Time Your Balance Transfer 

Timing a balance transfer is as important as harvesting your grapes before they sour. Credit card companies often offer a window that ranges from 45 to 90 days, when you can grab a 0% APR or lower balance transfer fees.

Thus, if you can transfer your balances before the deadline, you can avoid interest costs altogether.

The trick is to jump on a new card with a 0% introductory APR right after you open it. Most of these promotional periods last six to 18 months.

The faster you sign up for that promo, the longer you will have to pay down your debt without incurring interest.

Get a Larger Credit Limit

The chief advantage of a bigger credit limit is that it lets you do several transfers to the same card. When you have a sizable credit limit, you are capable of shifting all your balances in one go, and this will make the whole debt management process a lot easier. 

Say you have a card with a $3,000 credit limit, but you want to transfer a $6,000 balance. You’d have to transfer the $3,000, pay it down, and then transfer the rest; that’s another fee, and who knows, it might be higher by then. But if you have a card with a $10,000 limit, you can transfer that $6,000 all in one fell swoop, getting dinged just that one fee. 

Not only might doing a single transfer save you money on fees, but it’ll also make it easier in general to manage. If you play it right, this could help your credit score by reducing the number of transfers and, therefore, hard inquiries you go through while crushing your credit utilization ratio at the same time.

Search for Low or No Fee Offers

You can save serious coinage by hunting down low or no-fee balance transfer deals. Many credit card companies use these as the bait on a hook to reel in new customers.

You can search for these online, visit credit card comparison websites, or watch for credit card offers in the mail. 

Now, these deals may seem sweeter than molasses, but they usually have some kind of sour note. An example might be that a shiny no-fee transfer applies only if you move your balance by a specific time and that promotional interest rate? Yeah, it could evaporate after only six months.

You’ll want to make sure you read through all the fine print so you know exactly what you’re signing up for and can be assured of the best deal in town.

Negotiate with Credit Card Issuers

Believe it or not, you can actually haggle with your credit card company — just like you might at a flea market. Give your issuer a call and ask if it’ll knock down the balance transfer fee or maybe even waive it altogether as part of your balance transfer request. 

Well, it might be a good bet that the credit card company will play along, just in case it thinks it is going to lose you as a customer or wants to lure you in as a new cardowner. Your chances are better if your credit score looks sharp and your payment history is cleaner than a whistle.

Second, if you happen to have other offers in your pocket, then you are in a good position to negotiate. Casually mention those better deals, giving your chinwag just that little extra kick it needs to help you lock in a lower balance transfer fee.

Before wrangling up a balance transfer, you best know all the fees and terms like the back of your hand. These fees usually fall between 3% and 5% of whatever you’re transferring. Some cards may even dangle flat fees or sweet promotional rates to tempt you.

Now, check the terms on that credit card for every single cost it might toss at you. Knowing this ahead of time will keep you from stepping into any unexpected financial traps and ensure the balance transfer actually helps you reduce your debt.

But hold on, it isn’t just about the fees! Balance transfers can also shake up your credit score a little, depending on how good you are at paying off your card debts within the promo period. Provided you play your cards right, you’ll save a heap of money on interest by carrying your debt at a cheaper rate.

However, if you go in without a plan or skip out on the details, you’re liable to end up with higher costs and a bigger financial mess than before. So take your time and shop around for the best offers. Read that fine print and devise a good strategy for paying off that balance.