What Is a Balance Transfer Fee?

Credit card debt has skyrocketed to more than $1.1 trillion. So has looking for ways to avoid paying interest on that mountain of money.

For millions of Americans, the search leads to a balance transfer, moving debt from one high-interest credit card to a new card that doesn’t charge as much interest.

Sounds good, but beware. Moving your money comes with a price. It’s called a balance transfer fee, and it can be as much as 5% of the amount transferred.  So, if you want to move $6,218  — the average debt for people who carry a balance over to the next month — to a new credit card, it could cost you approximately $310.

Is it worth it?

It depends on your individual financial situation, but transferring debt is definitely worth considering.

What Is a Balance Transfer?

Credit card companies are constantly prowling for new customers, and balance transfers are a big selling point. Remember that $6,218 figure?

That’s the average balance U.S. consumers carry in 2024. That’s an increase of 8.5% since 2023, and the average interest rate in 2024 is a whopping 24.62%.

Talk about a double whammy. If you are making only a minimum monthly payment, it will take you 23 years to pay off the $6,218 principal, and you would pay $29,720 in interest doing it.

You don’t have to be Warren Buffet to know that’s crazy. Credit card companies let you temporarily escape the insanity by reducing the interest they charge on balance transfer cards.

All you need to do is move that $6,218 you’re paying 24.62% interest on to a new card that charges you 0%. It’s a proven way to manage debt, but it’s not foolproof.

Understanding Balance Transfer Fees

If no longer having to pay interest on your credit cards sounds too good to be true, that’s because it is.  The first catch is the transfer fee.

The amount depends on how much money is transferred and is based on a percentage of that amount. Though the fee is assessed when you sign up for a new card, you don’t have to pay it right away.

Transfer fees are typically just added to the principal. If you’re transferring $6,218 with a 5% fee, your new balance would be $6,528.

But here’s the second catch. That 0% interest is an introductory offer. It typically expires in 12-18 months, though that varies from card to card. Once the introductory rate expires, the regular interest rate kicks in. So, you could go from paying 0% one month to 24% the next.

Why Do Balance Transfer Fees Exist?

Transfer fees exist to cover administrative costs. You may say, “Is it more work for credit card issuers to transfer a $16,218 balance as opposed to a $6,218? If not, why does it cost more to transfer the larger amount?”

The amount of labor is the same, but credit card issuers assume more risk with larger transfers. That’s one reason transfer fees exist.

Another is they discourage consumers from excessive debt transferring. If someone is habitually getting a new card to avoid paying interest on an old one, it’s a financial red flag. They are kicking their can of debt down the road instead of confronting it and doing something about it.

That lack of financial discipline could lead to bankruptcy, in which case credit card companies might never get paid what they are owed.

The third reason credit card companies charge hundreds for transferring money is because they can. That’s how the game is set up. If you want to escape high interest rates, you have to play along.

Along those lines, a fourth reason transfer fees exist is credit card companies know many consumers will not pay off their balances within the introductory time frame. That’s when the card issuers really start making money, and it all begins with luring in new customers.

How Much Do Balance Transfer Fees Typically Cost?

Transfer fees are typically 3%-5% of the transfer amount. If you are transferring $5,000 with a 4% fee, the fee would come to $200.

Again, that amount is added to the total balance. Your new debt would be $5,200.

Transfer fees can be as low as 1%, and some credit card issuers will even waive transfer fees under certain conditions. So don’t rush into the process. Shopping around can save you hundreds of dollars.

When Is a Balance Transfer Worth It?

A balance transfer fee is a shrewd financial move if the math is right. Consider a credit card with a $5,000 balance.

If it charged the going interest rate of 24% and you made the minimal 2% monthly payment, it would take 16 years to pay it off and the average monthly interest charge would be $75.25.

If you transferred that $5,000 to a new card that charges a 5% balance transfer fee, it would cost $250.

So, for roughly what you’d pay for three months of interest on the old card, you could cover the cost of transferring the balance to a new card. And if you paid it all off within the introductory period, your total bill would have been $5,250.

It would be astronomically higher if you kept the old card and paid only the minimum monthly balance. But making only the minimum monthly payment is a worst-case scenario.

If you paid off the $5,000 on the old card in 18 months (the typical length of an introductory rate) the average monthly interest charge would still be $48.

That total of $874 over 18 months would be $624 more than what you’d pay if you transferred your debt to a new card.

So, get out a calculator and punch in your specific numbers. Chances are a balance transfer fee will be a good move — if you pay the whole thing off before the introductory rate expires.

Tips for Minimizing Balance Transfer Fees

It’s hard to find a credit card issuer that does not charge a transfer fee. Credit unions are more likely to waive the fee than major credit card issuers, but you’d likely need an excellent credit score to qualify.

The best way to minimize a balance transfer fee is to be picky. There are scores of credit card issuers competing for your business.

As with any other purchase, look for the best deal. Keep an eye out for special promotions, and don’t hesitate to haggle. Call the credit card company and make your case for a lower fee.

Perhaps you have a sterling credit history, but a medical emergency has forced you to rack up credit card debt. Whatever your case, it doesn’t hurt to try to negotiate a lower transfer balance fee.

You can also contact your existing credit card company and say you are considering transferring your business. That may motivate them to offer you a similar deal or lower your current interest rate.

Common Mistakes to Avoid

The first mistake people make when transferring debt to a new credit card is not shopping around. Transfer fees can vary by hundreds of dollars.

Don’t assume you can transfer all your debt. If you have $15,000 on your old card and your new card has a $10,000 credit limit, you’ll have to find another card issuer (and pay another transfer fee) for the remaining $5,000 or keep it on your old card.

Be ultra-aware of deadlines. There is a specific window in which you can transfer money, then there are the monthly payments. If you miss a payment, it could nullify your low introductory rate altogether.

The ultimate deadline to keep in mind is the expiration date on your introductory rate. When that arrives, you’ll be back to paying the high interest rate that drove you to get a new card in the first place.

If you really want to take advantage of the whole balance transfer process, wipe out as much debt as possible during the introductory time frame.

Making Smart Financial Moves

When handled right, transferring credit card balances is a good way to reduce your debt. It only makes sense to pay 0% interest instead of 20% on your debt.

What’s not good is to turn the process into a never-ending shell game. Paying transfer fees to avoid actually repaying your debt is a sign of trouble. If you find you’re on that carousel, the only way off is to get to the root of the problem.

Consulting with a financial advisor is a wise first step. Nonprofits have certified counselors who analyze your financial situation and spending habits. They can come up with a budget and help you stick to it. The strategy might include transferring debt to a low-interest credit card. There are other options like debt consolidation through debt management plans and debt settlement.

Whether you seek professional guidance or go it alone, the worst move is to keep paying high interest rates. That’s a good way to never get out from under your mountain of debt.