The lure of a 0% interest free offer is hard to pass up, but many people have second thoughts when they find a fee will be imposed on the balance transfer. The fee is usually between 3-5% of the amount being transferred and has become pretty standard in the industry. It might seem high, but when you factor in the typical interest rate being charged on credit cards – which presently averages over 15% – most of the time, balance transfer fees are worth paying.
Even given the fee, you can still save a substantial amount of money in interest payments when you transfer a balance to a special 0% interest rate, particularly if the offer is good for 12 months or longer. While the fee does cut into your savings, the effect is usually minimal.
As a rule of thumb, and to give you an idea of what the numbers look like, a person paying 15% interest can expect to save about $90 in interest for every $1000 being transferred, and that’s after taking the fee into consideration. Just how much you can save will vary based on your monthly payment, so those who pay less will save more. However, paying more is always a better idea, since the purpose of balance transfers is to not only reduce your interest expense, but get out of credit card debt as quickly as possible.
Of course, as with most things, there are a few exceptions to the rule that balance transfers are worth paying.
If the balance transfer rate only lasts 6 months, a high transfer fee can eat away at any savings you might gain. Also, if you know you’re going to pay your card in full in the next three to four months, paying a fee to transfer the balance is not that great a deal.
Finally, if you tend to be late on your credit card payments, a 0% APR balance transfer will be of little use. Credit card companies can end promotional rates if you are delinquent. If this occurs soon after the transfer, any savings you could have gained will be lost. Even worse, you’ll actually increase your overall debt due to the balance transfer fee.
Barring these few scenarios, a balance transfer fee shouldn’t stop you from taking advantage of a 0% offer. Just run the numbers through a balance transfer calculator and make sure the total amount you pay will be less over the long run than what you’re currently paying. In most cases, the numbers will show that, even given the fee, a balance transfer can still save you a substantial amount of money and expedite the process of getting out of credit card debt.
For additional information on credit cards currently offering 0% interest rates, please see the balance transfer offers section of Smart Balance Transfers.