Is a Credit Card Balance Transfer Fee Worth Paying?
People struggling to pay off their credit card debt know how fast the interest charges can pile up. And this is how they end up paying much more than they initially charged. While looking for ways to settle credit card debt and save money, a credit card transfer to bank account could come in handy. Whether it makes sense for a cardholder depends on several factors, including the balance, card terms, repayment strategy, and transfer fee.
Comparing the overall savings is a great idea to see if the credit card balance transfer fee is worth paying. The cardholder needs to see if the amount they save over time exceeds the balance transfer fee.
Calculating the Balance Transfer Fee
With a credit card balance transfer, the cardholder can move their outstanding balance from one card to the other. While it can give some time to pay off the card balance without any added interest, they need to pay the balance transfer fee as required by the credit card company, which ranges from 3 to 5%.
Once transferred, the cardholder repays the new balance through monthly EMIs within a promotional period at 0% APR. After that, they need to pay the interest amount on the new balance. Cardholders with good credit scores often qualify for a balance transfer at favourable terms and conditions and low balance transfer fees.
Is it Worth Paying the Balance Transfer Fee?
Even when the cardholder pays a 3 to 5% balance transfer fee, it can be a good idea if it is a high-interest debt. When deciding on a balance transfer, consider the following:
Fee Percentage: Although a 3-5% balance transfer fee does not seem a lot, it might add up as a percentage of the total balance. So consider the balance amount and the fee percentage before deciding on a balance transfer.
Annual Percentage Rate: A balance transfer is smarter if the interest rate is high. The Annual Percentage Rate or APR quickly becomes a substantial amount for the individual to owe. If the APR is in double digits, the minimum card payment does not progress against the balance, and the debt can quickly go out of control. Try qualifying for a 0% APR for a decent introductory period. It gives enough time to chip away the balance without accruing interest.
Promotional Period: Various card issuers offer promotional APR for lengths ranging from 6 to 21 months. The cardholder can repay the balance without any interest during this period. You need to pay attention to the introductory period’s length and the monthly payment necessary to clear the balance within that period. If the credit card balance is large and the cardholder needs time to repay it, a balance transfer with a short promotional period is a wise option.
Repayment Strategy: Cardholders with a substantial amount of unpaid balance need a repayment strategy before opting for a credit card transfer to bank account. Paying the balance transfer fee will become worth it if the user repays the transferred balance within the promotional period. Paying more than the minimum will avoid accumulating more debt. Those who carry a balance after the introductory offer’s end might negate the benefit of the balance transfer. Furthermore, missing the payments during this period will cancel the offer, and regular purchase APR and interest rates will apply.
Saving: Whether a balance transfer credit card is a good option depends on how much one saves with it. Letting the balance sit on a credit card online will quickly accrue the cost, even if it is a small percentage difference. The cardholders should check their current card statements and see the balance and minimum payment to calculate how long it may take to repay it completely. Compare the fee and APR and see how much the savings are after paying the balance transfer fee.
Also Read: What Is a Billing Cycle & How Does It Impact Credit Score?
Calculating the total debt amount, including the fee, potential interest, and APR, will help determine whether paying the balance transfer fee is worth it. A balance transfer will be worth it if the savings exceed the transfer fee. Increasing the payments and paying off the balance within the promotional period will make credit card transfer to bank accounts an even better deal. With that approach, they can be out of debt sooner without paying extra interest charges.
