No Balance Transfer Fee Doesn’t Mean Best Deal

October 4, 2010 No Comments »

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Consumers looking to execute balance transfers typically look for offers with no fee.

But nowadays those usually aren’t the best deals, considering it’s near impossible to find a 0% APR balance transfer with no fee.

If the balance transfer doesn’t come with a fee, there’s a very good chance it’ll come with APR above 0%.

Let’s look at an example:

Balance transfer offer: 4.99% APR for 12 months, 12.99% APR thereafter
Balance transfer fee: no fee
Credit card balance: $5,000

In this scenario, you’d avoid paying a balance transfer fee, but you’d be stuck paying 4.99% APR on your transferred balance.

Using simple math, that would be roughly $250 in finance charges annually, or about $21 a month.

Now consider another balance transfer credit card with 0% APR for 12 months and a 3% balance transfer fee.

You’d pay $150 upfront in fees, but you wouldn’t pay any finance charges during the first year (roughly $100 in savings).

This could help you get out of debt faster as payments would go entirely to the principal balance and not to pay off interest.

As a result, you’d probably be able to reduce your debt a lot quicker, making the balance transfer with a fee the better deal!

However, if you plan to pay off all the debt in just a few months, moving the balance with a no fee balance transfer could make more sense, as you’d only pay a few months of interest.

Tip: Currently very few credit card issuers offer balance transfers with no fee, opting instead to charge a fee so they can continue to offer 0% APR promotional periods.

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