Balance Transfer Fee vs. Interest: Which Costs More?

If you're carrying credit card debt right now, you're probably paying a lot more than you realize.

The average credit card APR sits right around 21%, according to the Federal Reserve. And with the average revolving credit card balance sitting around $6,500, annual interest can easily run $1,300 or more -- just for standing still.

I've spent years writing about personal finance and helping people find smarter ways out of debt. And one tool that keeps proving to be valuable is a balance transfer card. But before you move your balance, there's one cost you need to understand first: the balance transfer fee.

Typical balance transfer fees

Most credit card issuers charge a balance transfer fee when you move debt from one card to another. It's usually 3% to 5% of the transferred amount (or a $5 minimum).

Here's what that looks like on a $6,500 balance:

• 3% fee = $195
• 5% fee = $325

That fee hits once, upfront. But after that, your transferred balance will have 0% interest for the length of the promotional period -- as long as you continue to make payments.

I'll be the first one to admit that paying an upfront fee isn't fun if you're trying to save money. But when you look at the math, you'll realize it's quickly paid back by the massive amount of potential interest savings.

Potential interest you can save

Let's run the numbers using a $6,500 revolving balance at 21% APR with $325 monthly payments.

If you keep this debt on your current card making those payments, you'd pay roughly $1,570 in interest over about 26 months before you're debt-free.

Now compare that to a balance transfer card with a 21-month 0% intro APR. You'd pay zero interest. And with those same $325 per month payments, you'd knock out the balance before the promo period even ends.

Your only cost is the balance transfer fee -- around $195 at 3%.

That's a potential savings of $1,375, even after accounting for the fee.

Different cards offer different 0% windows -- some are 12 months, others stretch to 21 months or more.

If you want wiggle room, go for the longest intro period you can find. That extra breathing room can make a huge difference when you're grinding down a balance.

Compare the best balance transfer cards to find 0% intro APR offers that actually fit your payoff timeline.

When paying the fee doesn't make sense

A balance transfer isn't the right move for everyone. Here are a few situations where you might want to pause:

• Your balance is small or nearly gone. If you can pay it off in two or three months, the fee may cost more than the interest you'd save.
• You're planning to keep spending on the card. New purchases might not qualify for the 0% rate, and it gets messy fast.
• You know you'll struggle with discipline. A 0% window is only helpful if you actually use it to pay down debt -- not as a green light to spend more.

Do the math for your specific situation. This free online balance transfer calculator makes it easy to see whether the fee saves you money or not.

The bottom line

I've seen people use balance transfer cards to wipe out thousands in debt faster than they ever thought possible.

Yes, a balance transfer fee stings for a second. But compared to months (or years) of high-interest payments stacking up, it's almost always the cheaper option by a wide margin.

Just make sure you always make on-time payments, and don't use the 0% intro APR as an excuse to spend more. The goal is becoming debt-free, so keep that as the main focus.

See today's best 0% intro APR offers and start saving money on interest today.