What Is a Balance Transfer Fee?

Overview

If you are consumed by credit card debt and paying high interest fees on a number of credit cards, you may want to think about consolidating. Transferring the balances of several cards onto a new card with a lower annual percentage rate can save money every month and relieve some of your financial stress. Moving your balances and paying a low balance transfer fee may be better in the long run than paying a separate high interest rate on each individual card.

Identification

A balance transfer fee is assessed by your credit card company when you transfer the balance of one credit card to the other. For instance, if you have a balance of $1,000 on your Visa card and want to transfer this balance to your MasterCard because it has a lower interest rate, the bank that issued you the MasterCard will charge you a small percentage fee for the courtesy. This fee can range between 1 percent and 5 percent, on average, of the entire $1,000 balance transferred. If you're lucky, you can do this during a time when the bank has a 0% balance fee transfer promotion.

Benefits

If you are paying a high-interest rate on a credit card and another company has sent you a promotion that offers a low or 0% balance transfer fee--and the introductory annual percentage rate (APR) is lower than what you are paying on your present card-- transferring your balance to the new card can potentially save you money. If you transfer your balances to a new card and they total $1,000 and the new credit card has an introductory 3 percent balance transfer fee, you will tack on an extra $30 to your total balance. But if the APR is lower on the new card, you will save money on the amount of monthly interest.

Time Frame

Balance transfer fee promotions are usually set in place for a limited time. Therefore, if you will be transferring your balances, it's in your best interests to pay off the balance as soon as possible--or at least before the promotional percentage rate expires. If the balance transfer fee is set to expire in 6 months and you do not have the total transferred balance paid, a new balance transfer fee may kick in on the remaining amount.

Considerations

When transferring balances onto a new credit card, you may consider not using that particular credit card to pay for any new purchases. Since the lower or 0% balance transfer rate only applies to the transferred amount of credit, any new purchases will fall under the APR and add additional charges to your card. It will be easier to keep track of paying down your transferred balance before the introductory expiration date if you don't accumulate further credit card debt on that particular card.

Warning

Be careful when transferring balances to a new credit card, and be sure to read the fine print. Some credit card companies only run their 0% balance transfer fee promotions for a short time, raising the percentage after several months. If you are still carrying a large balance transfer, this can add up. Also, late payments, over-the-limit fees or any other negative cardholder practices may terminate the 0% offer and raise the balance transfer fee rate on the remainder of the transferred balance.

What Is a Balance Transfer Fee? by empiremoneymaker.com