Is a Balance Transfer Worth It? The Fee Math in Plain English

Balance transfers are one of my favorite moves in the whole credit card playbook. Move a high-interest balance to a 0% card, pay it down with no interest, done. But they're not free, and I've seen (and made) enough mistakes with them to know the math matters.

So here's the simple version.

When is a balance transfer worth it?

A balance transfer is worth it when the fee is smaller than the interest you'd pay in the time it actually takes you to pay the balance off.

That's the whole rule. The fee is usually 3% to 5% of what you move, charged up front. The interest you're avoiding depends on your current APR, your balance and how fast you can pay it down.

Example 1: $5,000 at 24% APR

Say you've got $5,000 on a card charging 24%, and you can pay about $343 a month.

• Without a transfer: it takes you about 18 months to pay off, and you pay roughly $970 in interest.
• With a transfer to a 15-month 0% card at a 3% fee: you pay a $150 fee, and $343 a month clears the $5,150 in 15 months. Total cost: $150.

That's about $820 saved. Even at a 5% fee ($250), you're still about $720 ahead. Easy yes.

Example 2: $1,500 at 24% APR

Now say it's $1,500 and you can pay $300 a month.

• Without a transfer: you're done in 6 months and pay about $97 in interest.
• With a transfer: a 3% fee is $45, a 5% fee is $75.

So you save somewhere between $22 and $52, and you have to open a new card to do it (hard inquiry and all). For a small balance you can clear fast, it's honestly not worth the hassle.

You don't have to do this math by hand, by the way. The balance transfer fee calculator does it for your numbers.

What are the hidden costs of a balance transfer?

This is where it gets you. A few things to know before you move anything:

• Purchases might not be 0%. On a lot of balance transfer offers, the 0% only covers the transferred balance. New purchases on that card charge the regular APR right away. This is exactly how I got wrecked: I kept swiping the card, ended up paying $135 in interest, and didn't get a cent of it back. I wrote the whole story up in what happens when your 0% APR ends.
• The clock usually starts when you open the card, not when the transfer goes through. And offers often require you to make the transfer within a set window after opening to get the 0% rate.
• You usually can't transfer between cards from the same bank. A Chase balance generally needs to go to a non-Chase card, and so on.
• The transfer is capped by your new credit limit, fee included. Approved for $5,000? You might only be able to move about $4,800 once the fee is added.
• Keep paying the old card until the transfer posts. It can take days to a couple of weeks. Missing a payment in the meantime gets you a late fee anyway.

How do I make a balance transfer actually work?

Three rules I follow now:

1. Divide by the months, not the minimum. Take the transferred balance plus the fee, divide by the months in the promo, and pay that every month. The minimum payment will not get you to zero in time.
2. Put the card in a drawer. No new purchases on it, ever, unless the offer clearly says purchases are 0% too.
3. Write down the end date. Then set a reminder a couple of months before, so if you're behind you still have options.

That last one is why I built the 0% APR tracker. Put in each promo and it shows the end date, the days left and the monthly payment you need to clear it in time. It's free to try without signing up.

Bottom line

A balance transfer is a great tool for a big balance at a high rate. For a small balance you can clear in a few months, the fee and the new card often aren't worth it. Either way, run the numbers first, keep the card in a drawer, and treat the end date like a bill that's due.

Sources

• CFPB: How to understand special promotional financing offers on credit cards
• CFPB: Regulation Z § 1026.53, allocation of payments