Is A Credit Card Balance Transfer Fee Worth Paying?
Because credit card interest rates may reach 30 percent, a balance transfer credit card is an ideal option to restructure current credit card debt. You may immediately avoid growing interest rates and provide yourself repayment flexibility by switching your balance to a card with a 0% intro APR.
A balance transfer, on the other hand, normally comes with a fee, which is usually around 3%. Is it, however, a price worth paying?
Select estimates the charge on your balance transfer and shows you which balance transfer credit cards are available.
Is it worthwhile to pay a balance transfer fee?
If you have a lot of credit card debt, paying the 3 percent balance transfer charge (or even the 5 percent fee) while transferring your balance to a card with a 0% initial APR offer is well worth it, but only if you still need time to pay it off. Paying high-interest rates on your present card as an alternative is not a financially wise idea.
However, if you can pay off your existing card’s amount quickly and in full, that is preferable. Any additional interest costs, as well as a balance transfer charge, will be avoided.
But, if you do decide to do a balance transfer, what will the figures look like?
Calculating the figures
A 3 percent balance transfer charge looks like this if you have the following balances:
A balance transfer of $500 is subject to a $15 charge.
A balance transfer of $1,000 incurs a $30 charge.
A $60 charge applies to a balance transfer of $2,000 or more.
A balance transfer of $5,000 is subject to a $150 charge.
A balance transfer of $10,000 is subject to a $300 charge.
When your credit card debt grows greater, you may want to consider refinancing it with a personal loan or a personal line of credit. A significant amount on a balance transfer credit card may also have a negative influence on your credit score.
Let’s imagine you have a $2,000 credit card balance, such as the Chase Sapphire Preferred® Card. The card’s variable interest rate runs from 15.99 percent to 22.99 percent, dependent on creditworthiness and either $5 or 5% of the transfer amount, whichever is larger. Even if you pay $100 per month on the low end, paying out the loan over 23 months will cost you an extra $338 in interest. That’s a lot more than the $60 charge for a 3% balance transfer.
The balance transfer charge is still much less than the $271 in interest you’d pay if you had a $5,000 balance (with a 15.99 percent APR) and expected to pay at least $750/month. Even if you pay $1,000 each month, the $150 charge is less than the total interest.
This demonstrates how credit card debt can quickly accumulate, and how by paying a tiny charge, you may avoid a bullet and get greater repayment flexibility.
It’s worth noting that certain credit cards carry a 5% balance transfer fee, so check the small print before proceeding. A 5% balance transfer charge will alter the equation above, but it may still be worthwhile.
What to Look for When Choosing a Balance Transfer Credit Card
There are a variety of debt transfer credit cards available, with many of them offering essentially identical features. However, you should choose a card depending on your specific requirements. Keep the following considerations in mind while comparing balance transfer cards:
Duration of the introductory offer: How long do you anticipate it will take you to pay off your whole balance? Based on this, you should be able to locate a card with a 0% initial APR on balance transfers that suits your needs. If you think you’ll be able to pay off your debt in fewer than 18 months, for example, the Citi® Double Cash Card provides a 0% intro APR on balance transfers for the first 18 months of card membership (14.24 percent – 24.24 percent variable after that). Balance transfers must be made within four months of the account being opened.
Other perks: If you’re looking for a new credit card, there are debt transfer credit cards that provide perks like cashback on purchases and travel insurance.
In Conclusion
A 3 percent balance transfer charge, and occasionally even a 5 percent fee, is nearly always worthwhile. Credit cards feature exorbitantly high-interest rates, making credit card debt incredibly difficult to repay. A balance transfer on a card with an introductory 0% APR offer is one approach to prevent spiraling credit card debt, but this is not a sustainable strategy.
It’s critical to have a strong budget in place, as well as good financial habits before you use credit cards. You might end yourself in serious debt if you don’t have things in place.