How are minimum payments determined on a 0 percent balance transfer card?

Opening Credits with Eric Sandberg

Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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How is the minimum payment determined on a 0 percent balance transfer card?

Minimum payments are assessed the same way on a 0 percent balance transfer card as on card charging interest.
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Check out all the answers from our credit card experts.

Dear Opening Credits,
If you do a balance transfer for $22,000 with no transfer fee and 0 percent interest, what would the monthly payment be? How is the monthly payment determined on a 0 percent balance transfer card? – Nancy

Dear Nancy,
If you are lucky enough to find a balance transfer card with a credit line that size, with a lengthy 0-percent interest period, and with no fee, consider yourself blessed because they are rare. You will need very good credit, and you will need to keep your eyes open for such a deal. In today's credit card market, such deals are rare, reserved for customers with good credit, and often temporary.

Regarding payments, there is a minimum monthly payment, which you have to make. And there is the payment you should make.

First, minimum payments. According to CreditCards.com minimum payment survey, nearly all major card issuers charge 1 percent of the principal balance, plus monthly interest and any fees. Discover is the outlier; it charges 2 percent of the total balance.

With no interest being charged for several months, the typical minimum payment on a $22,000 balance during the interest-free months following a balance transfer would start at $220. It would drop slightly each month as you pay down the balance. Once the interest-free period ends, the minimum payment would jump, because interest charges would be added to the balance owed.

But this is what you should do, though: Send far more than the minimum payment. To get the most out of balance transfer deal, you want to pay off the entire debt within the introductory time frame before the card’s regular APR kicks in.

Most of these introductory 0 percent interest offers last between six months and one year, but a few issuers will extend the rate further.

To know how much you’ll have to send each month so you can avoid being charged an extra penny in interest, just divide the amount of the debt you’re transferring over by the number of months the promotional period lasts. 

Here are some examples of what you’d need to send each month to pay off $22,000 within a specific period (rounded up to the nearest dollar):

6 months = $3,667
12 months = $1,834
18 months = $1,223

As you can see, the minimum payment the issuer would expect is far shy of even the lowest of these payments. While it’s nice to know what the minimum payment is and how it’s determined, the best strategy is to kick it up many notches.

And if you get stuck with a remaining balance after the 0 percent APR deal ends, you will start paying the real APR. Bear in mind that those regular APRs can be painfully high. According to the CreditCards.com December 2017 Balance Transfer Survey, the average post-introductory-period APR on balance transfer cards stood at 19.33 percent.

If you only have a few hundred dollars left over on the card, even the highest interest rate won’t result in costly finance fees, but in the event you still owe thousands, you’ll have a very expensive situation on your hands.

Let’s say you managed to eliminate all but $5,000, and the APR is now 19.33 percent. According to our minimum payment calculator, the minimum payment (which declines as the balance does) would start out at around $131. Stick to the minimum and it would take nearly 19 years to pay off, and cost more than $7,000 in interest charges.

So much for that great deal. Your best bet, then, is to continue to send as much as possible.

Finally, be aware that you can lose that 0 percent APR early if you pay late or charge more than the limit while the introductory rate is in effect. The low (or no) rate only applies to the transferred balance and typically not on purchases and definitely not on cash advances, so do not use that card at all while in repayment mode.

Be careful with that old card, too. It’s fine to charge the occasional item with it, but send the entire payment due immediately. Otherwise you’ll just be spinning your financial wheels and never get ahead.

So when you ask how the payment on a balance transfer is determined, look in the mirror. You, not the formula set by a bank, should decide. 

See related: How a balance transfer to a 0 percent card affects your credit score, 6 steps to a successful balance transfer


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Updated: 10-22-2018