balance transfer fee
A charge of typically 3-5% of the transferred balance when moving debt to a new credit card.
Example
“The 3% balance transfer fee cost $450 but was recovered in three months of 0% interest savings.”
Memory Tip
FEE — always calculate if the fee is worth the interest savings. Usually it is.
Why It Matters
Understanding balance transfer fees is crucial because they can significantly impact the true cost of moving debt between credit cards. Even though a balance transfer card might offer 0% interest for a promotional period, the upfront fee can eat into your savings, so you need to calculate whether the interest savings actually outweigh the transfer cost.
Common Misconception
Many people assume that if a card offers 0% interest on balance transfers, they will automatically save money by transferring their debt. However, they often overlook the balance transfer fee itself, which means they are paying money upfront just to move the debt, potentially negating some or all of the interest savings they would gain.
In Practice
Suppose you have a $5,000 credit card balance at 20% interest and you transfer it to a new card offering 0% for 12 months with a 3% balance transfer fee. You would pay $150 upfront in fees ($5,000 x 0.03), but you would save approximately $1,000 in interest over that year, making the transfer worthwhile despite the fee.
Etymology
Modern credit card fee term — the cost of moving debt between cards.
Common Misspellings
Compare debt consolidation options
Related Terms
More in debt
Other debt terms you should know
See Also
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