A lot of people accumulate credit card debt for a number of reasons. For this reason, banks try to offer financial solutions to provide a breather for customers who want to settle their balances. This is where balance transfer cards enter, providing lower fees for transferring card debt to a new card.
Some people associate a balance transfer fee with a balance transfer rate, but these things are completely different. If you decide to move your balances from another card to your new credit card, you need to understand the fees involved in the process.
In this article, you’ll learn the main differences between a balance transfer fee and a balance transfer rate, and the restrictions involved in making a balance transfer. Understanding these fees helps you make better decisions around whether to transfer a balance or not.
How Balance Transfers Work
How balance transfers work is by moving the balance of one credit card to another card, to avoid the long-standing interest. Accumulating a balance on the credit card means accruing additional interest, which happens when people can’t afford to make the full payment each month.
Paying only a fraction of the outstanding balance is convenient, but it’s not a good decision as interest piles up. To avoid acquiring massive interest, most consumers transfer the balances to a new card with no to low interest for balance transfers.
Moving an outstanding balance from one credit card to a new credit card with a better promotional interest rate is a smart move. Today, credit card incentives offer perks such as no balance transfer fees for a number of months.
Difference Between Balance Transfer Fees and Rate
The balance transfer rate refers to the interest rate charged each month on the current balance of funds transferred. For example, if you transfer a $1,000 balance to a new card, you will be assigned a balance transfer interest rate of roughly 3 to 5 percent of this amount monthly.
The balance transfer fee is a one-time penalty charged for transferring a balance from one credit card to another. This is for the administration of the actual funds transferred. Some new credit cards waive this fee.
To save money, you can get a balance transfer credit card with a longer 0% interest duration and no charges for balance transfers within a specific promotional period. Some issuing bank offers up to 24 months with 0% interest and no balance transfer fee, while others may only offer up to 12 months.
If a balance remains after the promotional period ends, cardholders will be charged a balance transfer rate. The balance transfer fee is only applicable for every transfer you make on a new card.
Is It Better to Transfer a Balance to a New Credit Card?
This depends on the new credit card you have, whether the promotional period and offer are generous. If you currently have a high-interest credit card, moving to a low-interest balance transfer card is a good move to help you pay off the balance sooner.
However, if you don’t study the fees involved and transfer just for the sake of moving it for a better interest rate, then this is problematic. The best way to deal with balance transfers is to study the fees and terms and conditions of prospective cards to be informed about the benefits and the risks.
Conclusion
Understanding the difference between the balance transfer fee and balance transfer APR is important to better manage credit card debt. Weigh the options available and see the fees involved in making a balance transfer.
At the end of the day, you will carry these balances until you’re able to clear everything off your plate. In the meantime, save money by limiting the fees and charges involved when transferring the card balance.