“How to Save Money with Balance Transfer Credit Cards”

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Understanding Balance Transfer Fees

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding balance transfer fees. For more information, see our Editorial Policy.

How Balance Transfer Fees Work

Balance transfer fees typically range from 3% to 5% of the amount transferred. For instance, transferring a $5,000 balance to a card with a 3% fee would cost you $150, while a 5% fee would be $250. Some cards have different fees depending on when the transfer is completed.

Besides credit card debt, balance transfer cards can sometimes be used to pay off loans, such as personal loans or home equity lines of credit (HELOCs). The card issuer may pay the lender directly or send you a check to pay off the debt.

The transferred amount, plus any balance transfer fee, becomes the new balance on your card. For example, transferring $2,000 to a card with a 5% fee would result in an initial balance of $2,100.

Are Balance Transfer Fees Worth It?

A balance transfer fee can be worth it if the fee is small compared to the interest savings. For example, transferring a $5,000 balance to a card with a 0% introductory APR for 21 months and a 5% fee would cost $250 in fees. Paying $250 per month would clear the balance in 21 months without additional interest.

Without a balance transfer, paying $250 per month on a card with a 20.68% APR would take 25 months and $1,133 in interest. The balance transfer would save you $883, even after the $250 fee.

To maximize savings, pay off the transferred balance before the promotional period ends. After that, any remaining balance will accrue interest at the card’s standard APR, potentially reducing savings.

Consider other costs and benefits, such as annual fees or rewards, when choosing a balance transfer card. A card with a $99 annual fee and a 3% transfer fee might cost more than one with a 3% fee and no annual fee.

How to Avoid Balance Transfer Fees

The only way to avoid a balance transfer fee is to choose a card that doesn’t charge one. These cards are rare, but you can compare various cards’ fees and other factors:

• Other fees: Annual, late, or foreign transaction fees can add up.
• Length of the low or 0% introductory APR: Longer periods make it easier to pay off a large balance.
• Standard APR: A lower APR after the promotional period saves money on interest.
• Time limits on balance transfers: Some cards require transfers within a specific timeframe.
• Low or 0% introductory APRs on purchases: Some cards offer promotional APRs on purchases as well.
• Rewards: If other features are equal, choose the card with better perks.

Best Practices for Completing a Balance Transfer

Once approved for a balance transfer card, follow these steps:

• Know the introductory and ongoing APRs.
• Check the time limit for completing the transfer.
• List the balance, APR, creditor, and account number for each debt.
• Find out your credit limit and balance transfer limits.
• Request a balance transfer from the new card issuer.
• Wait for the new card issuer to pay off the debt.
• Ensure the transfer is complete before stopping payments on old accounts.
• Understand the card’s terms, including penalties for late payments.
• Begin paying off your new balance within the promotional period.

The Bottom Line

Getting approved for a balance transfer card usually requires a good or excellent credit score (FICO® Score of 670 and above). Check your credit report and score before applying. Improving your credit score can help, and O1ne Mortgage is here to assist you with any mortgage service needs. Call us at 213-732-3074 for expert guidance.

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