What Is the Cost Involved with Doing a Credit Card Balance Transfer?

Calculating how much a credit card balance transfer costs you and how much can you save.

Credit card balance transfers are usually done to take advantage of are introductory low rate of interest on a credit card. A credit card may offer you to transfer your balances from other cards and promise to save you money offering you a lower rate of interest. Many people transfer the balance from the existing credit cards because they don’t like the terms and conditions of that card any more. Is true that you can save money on the interest rate if the balance is large enough. However there are processing fees and other charges on what will transferring the balance from one credit card to another which could make it and expensive proposition. You need to calculate how much you are going to be saving against the additional cost of transferring the balance.

In order to calculate the cost of a balance transfer and the money that you will save you will need to know the following:

· interest rate and the balance amount on the current credit card

· the rate of interest on the new credit card

· the length of the introductory interest rate and the interest rate applicable after the introductory period is over

· the normal APR for balance transfers

· annual fee of the new credit card

· the balance transfer fee which is typically 1 to 3% of the balance being transferred

An Example of a Balance Transfer

consider this example where you currently have a credit card with great house and dollar balance at 17% APR. If you transfer this balance to a credit card with a 3.9% introductory interest rate for a period of 12 months and a 4% balance transfer fee you save $273 in interest during the introductory period after the deduction of the $120 balance transfer fee. If the interest rates that comes into effect after the introductory period is 11.9% then your monthly savings will be $13 a month after the introductory rate expires.

You get to save so much money only because of the very low interest rate being offered you in the introductory period. If this was not the case any would only be saving $13 every month which would take you 10:50 months to break even with the fee that you initially paid for the balance transfer.