You may throw away credit card mail offers without a second look, but if a balance transfer credit card offer has caught your eye, review the fine print. The value of a balance transfer offer largely depends on the balance transfer fee. Here’s what you should know before making a decision.
What Is a Balance Transfer?
Credit card companies sometimes offer balance transfer deals to attract new customers. The terms of each offer vary by card, but in general, the credit card company may offer a zero percent annual percentage rate during an introductory period, usually 12 to 18 months, if you transfer your balance from another credit card.
[Read: The Best Balance Transfer Credit Cards of 2018.]
It’s possible to perform balance transfers to both new and existing credit card accounts. However, you can’t transfer a balance from one account to another with the same card issuer.
Balance transfers can help you save money on interest charges during the introductory period if you carry a balance. If you’re trying to eliminate debt, a balance transfer can help you pay down the balance faster without interest during the introductory period.
The downside? There may be a fee involved. “Typically, the fee is calculated as a percentage of the total balance transferred, normally between 3 and 5 percent,” says Megan Robinson, personal finance expert and editor at DollarSprout, a resource for making and saving money. If you transfer a balance of $10,000, it could cost you $300 to $500.
Not all credit cards charge balance transfer fees, but they are common. Chelsea Hudson, senior public relations officer and personal finance expert at consumer savings site TopCashback, says, “Before you commit to a balance transfer card, educate yourself on the costs associated with transferring a balance.”
Are Balance Transfer Fees Negotiable?
Before you accept a balance transfer offer and the fee that comes with it, it’s worth trying to negotiate a better deal. Robinson says, “Many people don’t realize you can negotiate with credit card companies on everything from interest rates to balance transfers.” That’s especially true if you’re a new customer. “Many credit card companies will waive fees in order to get you on board,” she added.
Robinson suggests contacting the card issuer you’re interested in and asking what kind of deal it can cut. Ask if it’s possible to waive the fee or cap it at a reasonable rate of $50 to $100, she says, noting a lower fee is a better option than 5 percent of a large balance.
If you don’t get anywhere with the first representative you speak to, request a supervisor. Sometimes the deal you’re offered depends on who you talk to. But even if the issuer ultimately can’t waive the fee, there might be other perks it can offer, such as a lower APR or higher rewards rate.
“Be patient, even if the fee can’t be waived. You might get other sweeteners,” says Hudson. “Remember, credit card companies want your business. … It pays to ask if there is anything else the company can do.”
When it comes to negotiating with your current credit card company, according to Robinson, it’s important to bring up how long you’ve been a loyal customer and how much money you were worth to the company last year. The company might waive the fee to keep you happy.
Crunching the Numbers on Balance Transfer Fees
Since you may have to pay a fee to transfer a balance, compare your interest savings to the fee to make sure the transfer will help save money in the long run. If the interest on your existing credit card debt would cost you more than the balance transfer fee, then it makes sense to pay the fee.
[Read: The Best Low-Interest Credit Cards of 2018.]
For example, let’s say you have a credit card with a balance of $10,000. With a 3 percent balance transfer fee, it would cost you $300 to transfer the balance to a new card. If you keep the balance on your current card at 15 percent APR and make only minimum payments, you’ll accumulate more than $1,400 in interest in one year. In this case, the balance transfer fee would be worthwhile.
You also have to consider whether you’ll be able to pay down the balance before the introductory interest rate is up.
“Determine the timeline in which you can realistically pay off your remaining balance,” says Robinson. Let’s take the example of your $10,000 credit card balance again. Say you have a balance transfer offer of zero percent APR for the first 18 months, after which the interest rate resets to 18 percent. You would need to pay about $556 per month to wipe out the balance before the interest rate applies.
Bottom line: “If you’re able to pay off the balance transferred before your interest-free period ends and the balance transfer fee is less than the amount of interest you would pay on the original card, then transferring is worth it,” says Robinson.
How Your Credit Plays Into the Equation
In addition to your negotiation skills, your credit makes a difference in the offers and fees you’ll be presented. Credit cards with balance transfer offers are generally limited to consumers with a good credit score. The better your credit, the better your terms and fees are likely to be.
[Read: The Best Credit Cards for Bad Credit of 2018.]
Review your credit report before you apply for a balance transfer card to make sure it’s accurate and there aren’t any major derogatory marks. If you have bad credit, you could miss out on longer introductory interest periods, lower fees and lower interest rates, says Hudson.
Finding the Best Balance Transfer Offers
Many balance transfer credit card offers are available, so take the time to shop around for the best deal. Although it’s important to research balance transfer fees and look at cards with no balance transfer fee, those aren’t the only factors you should consider.
“Selecting the best card takes some research but can be very rewarding,” says Hudson. Take the time to review the current balance transfer credit cards available and familiarize yourself with the terms and conditions to help you narrow down your options.
Look at annual fees, rewards and interest rates. All of these factors play into whether you’ll come out ahead in the long run.
Balance transfers can be a great way to save money and get out of debt faster. And with good credit, you can qualify for the very best terms and fees — maybe even no fee at all.
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When Are Balance Transfer Fees Worth It? originally appeared on usnews.com
