Saving on Interest Payments with a Balance Transfer

A credit card balance transfer involves moving the outstanding debt from one credit card to another, typically with the aim of obtaining better terms such as a lower interest rate or more favorable repayment terms. This process is often utilized by individuals who have accumulated high-interest debt on one credit card and wish to reduce the overall cost of borrowing. By transferring the balance to a card with a lower interest rate or a promotional 0% APR period, borrowers can potentially save money on interest charges and pay off their debt more efficiently.

What to consider when transferring a balance to a new card

When considering a balance transfer, it's essential to evaluate the following factors:

• Balance Transfer Eligibility: Many cards which are not branded as 'balance transfer' cards still offer balance transfers, meaning you should cast a wider net in your card search than you may initially think. There are, though, some cards that explicitly do not allow balance transfers.
• Transfer Fees: Most balance transfers incur a fee, typically around 3-5% of the transferred amount.
• Promotional Period: Look for cards offering a 0% APR promotional period on balance transfers. Consider the length of this period, as a longer period of no interest gives you more time to make interest-free payments against the balance (reducing overall interest costs).
• Balance Transfer APR: After the promotional period ends, the balance (on the new card) will accrue interest at the regular APR. Evaluate this rate to understand the long-term cost implications of the transfer.
• Balance Transfer APR vs your current card's APR: Compare the APR of your current credit card (which carries the balance) with the APR offered by the new card. A balance transfer is typically beneficial only if the new APR is lower than the current APR, allowing for potential interest savings.
• Credit Limit: Ensure the new credit card has a sufficient credit limit to accommodate the transferred balance without maxing out the card, which could negatively impact your credit score.
• Overall Cost Savings: Consider the total cost savings of the balance transfer, including transfer fees, promotional period benefits, and potential interest savings. Compare this with the cost of maintaining the existing debt to make an informed decision.

How Crunchly Evaluates and Considers Balance Transfers

Based on three inputs from you, we calculate the expected value to you of a balance transfer across all the eligible cards we track and include it in as part of our total value calculation.

Balance transfer amount

Enter the amount you plan to transfer to a new card. This amount should be the total outstanding balance you wish to move from your current credit card to the new card.

Payoff method

How you plan to pay off your balance can play a big role in determining how much interest you end up paying. Make a selection which best represents how you plan to make payments against your balance transfer on your new card:

• Pay the full balance immediately: You plan to repay the full balance during your first month of openining the new card. Regardless of the balance transfer APR, you would pay no intrest on the balance, but still be assessed a balance transfer fee (and of course have to provide payment for the full balance amount). This scenario is somewhat unlikely but possible.
• Pay the full balance in even payments over life of the card: In this case, you plan to make roughly equal payments each month against your outstanding balance transfer balance, such that you fully pay off your balance in a fixed number of years. Note that you can adjust the number of years here.
• Make only minimum payments (not pay off balance): You plan to make only minimum payments against your balance. Most likely this will result in you NOT paying off your balance in a timely manner, and will maximimize the amount of interest you end up having to pay (not recommended).

Current APR

Input the APR rate you are currently paying on your existing credit card where you carry the balance you are planning to transfer. Knowing this rate lets you effectively compare new vs current interest payments.

Calculation of balance transfer fee

We first calculate the balance transfer fee you would pay on the new card. For each card we track thier stated balance transfer fee percent, stated on thier published terms and conditions (or rates and fees) for the card. We multiply this percentage by your balance transfer amount, and add this expected fee to the first month balance for the new card.

Calculation of interest charges on the new card

Next, we calculate the interest charges you would pay on the new card. We calculate this based on the APR of the new card, the payoff method you selected, and the number of years you selected to pay off the balance. We calculate the expected interest charged on your balance transfer for each month you have the card (and carry a balance).

Calculation of interest charges on your current card

Next, we calculate the interest charges you would pay if you didn't transfer the balance and instead kept the balance on your current card. We do this so you can effectively compare interest savings between the new card (all possible options) and your current card. We follow the same methodology as described immediately above.

Calculation of expected interest saved

Finally, we calculate the expected interest saved by transferring the balance to the new card. We do this by comparing the total interest charges you would pay on the new card to the total interest charges you would pay on your current card. This gives you a clear picture of the potential savings from a balance transfer.

Incorporating Balance Transfer Into Card Recommendations

We factor balance transfer fees and interest savings into our card recommendations through the concept of total value.

The total value represents the overall value of a credit card condensed into a single number, encompassing rewards, benefits, fees, and more. By considering interest savings alongside other pertinent factors, such as rewards and benefits, we aim to identify cards that offer the best value proposition based on their individual preferences and spending habits.

See additional resources to learn more about how we calculate credit card total value and how we determine overall card scores and rankings.