How much will it cost in fees to transfer a $1000 balance to a credit card?

Transferring Credit Card Balances: Understanding Fees and Potential Savings

When faced with high-interest credit card debt, transferring balances to a new card with a lower APR (annual percentage rate) can be an attractive option to save money on interest charges. However, it’s important to consider the upfront costs associated with balance transfers, including fees.

Balance Transfer Fees

Most credit card companies charge a fee for transferring balances, typically ranging from 3% to 5% of the total amount transferred. This means that if you transfer a $1000 balance, you could incur an upfront fee of $30 to $50.

Evaluating the Potential Savings

While the balance transfer fee represents an added expense, it’s crucial to assess the potential interest savings that could outweigh this initial cost. Consider the following:

• APR Difference: The difference in APR between your current card and the new card is a key factor in determining the potential savings. A significant APR reduction can result in substantial savings over time.
• Balance Transfer Length: The length of time it takes to pay off the transferred balance also affects the amount of interest you’ll pay. A shorter repayment period means less time for interest to accrue.

Example Calculation

For instance, let’s say you transfer a $1000 balance from a card with an APR of 18% to a new card with an APR of 6%. Assuming a $50 balance transfer fee and a repayment period of 12 months, here’s how it would compare:

• Interest on Original Card: $1000 x 0.18 = $180 in interest
• Interest on New Card: $1000 x 0.06 = $60 in interest
• Savings: $180 – $60 = $120

In this example, the potential interest savings of $120 outweighs the $50 balance transfer fee, making the transfer cost-effective.

Conclusion

Transferring credit card balances can be a smart move to save on interest charges, but it’s essential to factor in the associated fees. By carefully evaluating the potential savings against the upfront cost, you can make an informed decision and maximize the benefits of a balance transfer.