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Understanding Balance Transfer Fees and How They Work

At O1ne Mortgage, we prioritize consumer credit and finance education. This article provides an objective view to help you make the best decisions regarding balance transfer fees. For any mortgage-related needs, feel free to call us at 213-732-3074.

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 based on when the transfer is completed.

Besides credit card debt, balance transfer cards can sometimes be used to pay off 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.

Are Balance Transfer Fees Worth It?

A balance transfer fee can be worth it if the savings on interest outweigh the fee. 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. Paying $250 per month would clear the balance in 21 months without additional interest, saving you $883 compared to a card with a 20.68% APR.

To maximize savings, pay off the transferred balance before the promotional period ends. Otherwise, the standard APR will apply, potentially reducing your savings.

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, so the next best option is to find a card with a low fee. Consider other factors like annual fees, the length of the introductory APR period, the standard APR, and any rewards or additional fees.

Best Practices for Completing a Balance Transfer

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

• Know both 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 the 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 any 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 be achieved by bringing late accounts current and paying bills on time.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make informed financial decisions.

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