Long 0 percent introductory APRs are tempting offers, but save you less money than no balance transfer fee.
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With the new year just getting started, financial goals for 2019 might be on your mind. If getting out of debt is on the top of your list, it might be time to think about signing up for a balance transfer credit card.
What is a balance transfer fee?
When you’re looking for a way to consolidate or pay down your debt, you might consider transferring the balance you are carrying to a balance transfer credit card. These cards come with incentives that make it easier to chip away at your debt, like lengthy 0 percent APR periods and lower interest rates.
Though you won’t be paying interest for the first several months, many of these cards charge an initial balance transfer fee – usually around 3 percent. To put this in perspective, transferring a $5,000 balance will cost you around $150 up front. If you need to consolidate debt on more than one card, you’ll have to pay the fee on every transfer.
Other balance transfer cards, like the Chase Slate card, don’t charge a balance transfer fee for the first few months. Typically, the trade-off for this perk is a slightly shorter introductory period. Here’s a quick look at two popular balance transfer cards with no transfer fee.
|Credit card||Transfer fee||0% APR intro period||Regular APR|
|Chase Slate||15 months||16.99-25.74% (variable)|
|Amex EveryDay® Credit Card|
$0 (can only transfer a balance in the first 60 days)
Comparing balance transfer offers: Why no fee is a better value
If you’ve been paying hefty interest charges on a large balance for a while, it is natural to hope for some reprieve when you choose a balance transfer card. While it can be tempting to jump at an 18-month or longer interest-free offer, it is almost always a better idea to go with a no-fee card – even if you’ll have less time with a 0 percent APR.
Since balance transfer fees typically hover between 3 and 5 percent, you’ll usually save more money with a no-fee card than you’d pay in interest with a shorter introductory period.
To understand just how this works out, consider the Citi Simplicity® Card. While the Citi Simplicity has a regular variable APR of 16.24 to 26.24 percent, it has one of the longest introductory APRs you’ll find on a balance transfer card – 0 percent for 21 months. That’s six more interest-free months than the Chase Slate. However, the offer comes with a 5 percent balance transfer fee. Here’s a quick look at what you could end up paying for the Citi Simplicity card’s transfer fee versus the Chase Slate card’s extra six months of interest.
Cost of transferring and paying down a balance over 21 months
|Citi Simplicity® Card||Chase Slate (with a 25.74% APR)|
|$500 balance with $25 monthly payment||$25 balance transfer fee||$9 in interest|
|$2,000 balance with $98 monthly payment||$100 balance transfer fee||$39 in interest|
|$4,000 balance with $195 monthly payment||$200 balance transfer fee|
$81 in interest
|$8,000 balance with $400 monthly payment||$400 balance transfer fee||$139 in interest|
Consider rewards and other perks when choosing a balance transfer card
If you are worried about sacrificing rewards to pay down your debt, there are plenty of good balance transfer cards with rewards programs. However, most of these cards will still charge a 3 to 5 percent balance transfer fee.
When you factor in the money you could save on a no-fee card, signing up for a balance transfer card with rewards is probably not your best option. You probably won’t be earning enough out of your rewards program to make up for the additional cost of the balance transfer fee.
For example, the Discover it® Balance Transfer card has an average yearly rewards value of $335 if you spend $1,325 every month. But to avoid losing any of that money to interest, you’ll have to pay off that new purchase balance each month. If you are already making significant payments to chip away at some debt, a high monthly spend on your rewards card could be out of your budget. That means whatever you earn in rewards is likely to be less than you’d save with no balance transfer fee.
If paying down debt is a top priority, a balance transfer card with no transfer fee is probably your best option. You’ll almost always save enough to make up for shorter introductory APR periods.