Balance Transfer Fees Are Common
Credit card balance transfers can be quite handy if you’ve got a lot of existing credit card debt that’s subject to costly finance charges.
After all, why pay interest to your credit card issuer each month if you can move the debt to a new credit card with 0% APR?
Well, one downside to credit card balance transfers is the associated fee, which generally ranges from 3% to 5% of the balance amount transferred.
So for every $1,000 you transfer, you’ll likely pay $30 to $50.
Most balance transfers have fees, but there are plenty that waive the fee or don’t charge it all.
What Is a Balance Transfer Fee?
These pesky fees are known as “balance transfer fees,” and are charged on most every credit card balance transfer offer out there.
As mentioned, they can range from 3-5% of the amount transferred, and typically have a minimum of say $10. The average balance transfer fee is 3%. If you’re being charged more, know that you can probably do better.
Credit card issuers charge balance transfer fees to ensure they make money off cardholders who are taking advantage of their 0% APR and other low-rate offers.
If they didn’t charge a balance transfer fee, they would essentially run the risk of a cardholder moving their credit card debt to them, making only the minimum payment each month, and then transferring it again before the promotional 0% APR ended.
Balance transfer fee example:
Amount transferred: $2,500
Balance transfer fee: 3%
Balance transfer cost: $75
In this rather common scenario, you’d have to pay $75 for the privilege of transferring your credit card balance to another credit card issuer. In exchange for that fee, the new credit card issuer would agree to take on your credit card balance at a lower interest rate.
The balance transfer fee is rolled into your new balance, so in our example you would owe $2,575 with your new credit card issuer.
Generally, there is a minimum amount you must pay to transfer a balance, such as $10, assuming it’s not a no fee balance transfer offer.
In the past, it was fairly easy to get your hands on a no fee balance transfer, but the financial collapse that occurred in late 2006 wiped out many of those deals.
No Balance Transfer Fees Used to Be the Norm
During the boom years, many savvy consumers took advantage of no fee balance transfer offers, and moved credit card debt from one card to the next, all the while never paying a dime in interest, or any fees.
But credit card issuers quickly (well, not that quickly) caught wind of this so-called “balance transfer arbitrage,” and started slapping fees onto their balance transfer offers.
Not only did they add fees, but in many cases, they raised fees from 3% to 5% and removed maximum fees on balance transfers. Before the credit crunch, most balance transfer fees were capped at a certain dollar amount, such as $75, regardless of how large the transfer amount was. Clearly this was a huge benefit for those transferring big balances.
Today, it’s not uncommon to see a balance transfer fee with no cap, meaning you could pay a hefty fee on a large balance.
You Can Still Avoid Balance Transfer Fees
However, there are still no fee balance transfer offers out there if you look hard enough, and even with the fees, balance transfers can save you some serious money.
The key is to determine whether a balance transfer makes sense for you (fee and all) by looking at your current interest rate and the balance transfer interest rate, factoring in any balance transfer fees.
Even with a 5% balance transfer fee, it could be the right move, especially if your current credit card has a sky-high APR.
Most credit cards carry APR in the teens or higher, so moving a credit card balance to a credit card with an APR of 0% or something in the single digits could be a huge money saver.
Tip: If you can’t find a no fee balance transfer, why not simply ask your credit card issuer to waive the balance transfer fee.