Transferring high-interest debt to a credit card that offers a zero percent introductory APR can be an incredibly smart idea due to the interest savings alone. After all, the average credit card interest rate is currently over 16 percent, and this can make paying down debt the hard way a pricey affair.
By consolidating debt with one of the top balance transfer credit cards, you get the chance to funnel money directly toward your balance without forking over any interest payments for a set period of time. If you pay enough each month, you could even pay off your debt with no interest and become entirely debt-free during your card’s introductory period.
However, you’ll want to read over the fine print on your balance transfer offer to check for fees, and specifically for balance transfer fees.
What is a balance transfer fee?
A balance transfer fee is exactly what it sounds like—a fee charged by a balance transfer credit card each time you transfer a balance from another credit card or a loan. Balance transfer fees are usually 3 percent or 5 percent of the balance you transfer. For example, transferring a $10,000 balance would likely involve a transfer fee of $300 or $500.
That may seem like a lot of money, but the amount you pay for this fee can seem like a drop in the bucket when you compare it to the interest you might pay on a large balance over time. For example, $10,000 in debt on a credit card with an APR of 16 percent would take you 83 months (almost seven years) to pay off with a payment amount of $200. During that time, you would pay $6,588 in interest payments alone.
How do balance transfer fees work?
Balance transfer fees are added onto the new balance you transfer to a credit card. If you transfer $5,000 in balances to a zero percent APR credit card that charges a 3 percent balance transfer fee, for example, your new credit card would start off with an initial balance of $5,150. This amount is made up of the $5,000 in balances you transferred over, plus the 3 percent fee.
Once your balance transfer is complete, you’ll owe the money charged for the balance transfer just as you owe the original debt.
Note that, most of the time, a minimum balance transfer fee of at least $5 or $10 applies. This means transferring a relatively small balance of $100 to a balance transfer credit card will still require a balance transfer fee of at least $5, even though 3 percent of $100 is only $3. If you’re curious where to find balance transfer fee information for credit cards you’re considering, you can find this information in the cardholder agreement.
Are balance transfer fees worth it?
Paying a balance transfer fee is usually worth it provided you are serious about conquering your debt during your new card’s zero percent introductory APR period. After all, you could easily save thousands of dollars in interest just by paying a balance transfer fee of a few hundred dollars.
Just remember that introductory APR offers don’t last forever, and that your credit card’s interest rate will reset to a higher variable rate once your offer is over. If you pay a balance transfer fee to transfer a balance but you don’t make meaningful progress toward your debt during the no-interest period, you may not end up much better off than when you started the process. This is especially true if you continue using credit cards and racking up more debt all the while.
To summarize, paying a balance transfer fee can be well worth it if:
You pay down as much debt as possible during your credit card’s zero percent introductory APR period
You stop using credit cards and racking up more debt
Best balance transfer cards
There are quite a few credit cards that let you enjoy zero percent APR on balance transfers for a limited time, and some of them even let you earn rewards. Bankrate compared all the top balance transfer offers available today, and here are the top options you should consider:
Longest 0 percent APR offer: Citi® Diamond Preferred® Card
Citi is an advertising partner
The Citi® Diamond Preferred® Card doesn’t offer any rewards, but you get 18 months with a zero percent APR on purchases and balance transfers, followed by a variable APR of 14.74 percent to 24.74 percent. A 3 percent (minimum $5) balance transfer fee applies. This card does not charge an annual fee.
Best for earning cash back: Citi® Double Cash Card
The Citi® Double Cash Card doesn’t charge an annual fee, yet you’ll earn 1 percent for each dollar you spend when you make a purchase and another 1 percent when you pay it off. You’ll also qualify for a zero percent APR on balance transfers for 18 months, followed by a variable APR of 13.99 percent to 23.99 percent. A 3 percent (minimum $5) balance transfer fee applies.
Best welcome bonus: Wells Fargo Cash Wise Visa® Card
The Wells Fargo Cash Wise Visa® card lets you rack up a flat 1.5 percent in cash rewards for each dollar you spend without an annual fee. You’ll also earn a $150 cash bonus when you spend $500 on your card within three months of account opening. This card also offers a zero percent APR on purchases and qualifying balance transfers for 15 months, followed by a variable APR of 14.49 percent to 24.99 percent. A 3 percent (minimum $5) balance transfer fee applies for the first 120 days. After that, the balance transfer fee goes up to 5 percent (minimum $5).
The information about the Wells Fargo Cash Wise Visa® card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.
The bottom line
Don’t let the potential of paying a balance transfer fee scare you off if you need to consolidate high-interest debt. The reality is, paying a balance transfer fee can easily be worth it if you have the chance to save hundreds or thousands of dollars in interest payments.
As always, it makes sense to run the numbers using a balance transfer calculator to see how much you could save. Also, make sure to compare all the best balance transfer cards on the market today so you can wind up with the best card for your needs and goals.