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WalletPrep worksheet · Debt

Is a balance transfer worth it?

Name ____________________ Date __________

Key ideas

  1. The fee is the price of 0%. Fees are often 3% to 5% of the amount moved. On $6,000, a 3% fee is $180, added to your new balance.
  2. Divide the balance by the promo months. That is your monthly payment to finish in time. In the example, $6,180 ÷ 18 months is about $343 a month.
  3. New purchases can cost interest right away. While you carry a transferred balance, new spending on that card often loses its grace period. Use a different card or debit.

Vocabulary

Balance transfer
Moving debt from one credit card to another, usually to get a low or 0% promotional APR for a set number of months.
Hard inquiry
A credit check made when you apply for credit, like a card, loan or mortgage. It can lower your score a few points for a while.
Credit report
A record of your credit accounts, payments, balances and some public records, kept by each of the three credit bureaus.
APR
Annual percentage rate: the yearly cost of borrowing money, shown as a percentage. It is the number to compare on cards and loans.
Grace period
The time between the end of a credit card billing cycle and the due date, when new purchases are interest-free if you paid in full.
Annual fee
A yearly charge some credit cards add to your bill just for having the card, whether you use it or not.

Work it out

Sam owes $6,000 on a card at 24% APR and can pay $350 a month. He finds a 0% offer for 18 months with a 3% transfer fee.

  1. Balance moved
  2. Transfer fee (3%)
  3. New balance at 0%
  4. Interest if he stays, at $350/mo
  5. Minus the transfer fee
  6. Saved by transferring

Check yourself

  1. You move $4,000 with a 5% transfer fee. What is the fee?

    • A. $20
    • B. $200
    • C. $400
    • D. $500

  2. What usually happens to a balance left over when the 0% promo ends?

    • A. It is forgiven
    • B. It starts building interest at the regular rate
    • C. It moves back to the old card
    • D. It stays at 0% as long as you pay on time

  3. Which move best protects a balance transfer plan?

    • A. Use the new card for daily spending
    • B. Pay the minimum and save the rest
    • C. Pay the balance ÷ promo months each month
    • D. Close all your other cards

Your turn

Look up the APR and balance on your highest-rate card. Multiply the balance by 3% and by 5% to see the fee range, then run the card payoff calculator at your planned payment to see the interest you would pay by staying put.

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Answer key

Is a balance transfer worth it?

Work it out

  1. Balance moved$6,000
  2. Transfer fee (3%)$180
  3. New balance at 0%= $6,180
  4. Interest if he stays, at $350/mo$1,421
  5. Minus the transfer fee− $180
  6. Saved by transferring= $1,241
  1. The fee is $6,000 × 3% = $180, so Sam owes $6,180 on the new card.
  2. At $350 a month he clears $6,180 within 18 payments, before the promo ends. Interest paid: $0.
  3. Staying put at 24% and $350 a month would take 22 months and cost $1,421 in interest.
  4. The transfer saves $1,421 − $180 = $1,241, as long as Sam pays on time and adds no new spending.

Check yourself

  1. B. $200 $4,000 × 5% = $200, which is added to your new balance.
  2. B. It starts building interest at the regular rate Any balance left after the intro period builds interest at the card's regular APR.
  3. C. Pay the balance ÷ promo months each month Dividing the balance by the promo months gives the payment that clears the debt before interest starts.