A no fee balance transfer can be a good option for people who need to reduce their debts.  Since you won’t have to pay the normal interest rate during the introductory period on the new card, you can work toward paying off the balance during the low interest period.  Some cards even offer 0% interest during the introductory period, which means that 100% of your payment will be applied to the credit card balance.

If you’re wondering what the catch is, you’re right to be suspicious.  In fact, 88% of the banks that allow balance transfers charge a fee for doing so.  This balance transfer fee can reduce or eliminate the benefit obtained by transferring your balance to a card with a lower interest rate.  However, instead of searching for the 12% of credit card issuing banks that don’t charge fees on balance transfers, try giving your local credit union a call to see if they offer a no fee balance transfer.  Only 25% of credit unions charge a fee for this service.

The typical fee charged for a balance transfer is around 4%.  Always read the credit card terms carefully before entering into a balance transfer transaction to make sure that you understand what fees, if any, will be charged.  This applies whether you are going through a credit union, bank, or other credit card company.  If you can find a deal where you can transfer your balance to a card with a 0% introductory rate without paying a balance transfer fee, you will be able to make some real progress toward paying down your credit card debt before the interest rate rises to its normal level.

Here is an example of the progress you can make using this strategy to pay down your debt.  If you owe $8,000 on your credit cards and transfer that balance to a card with a six-month 0% introductory rate and no transfer fee, at $200 per month, you can pay $1,200 of the balance by the end of the six-month introductory period, leaving you with a new balance of $6,800.

If you had left that balance on the original credit card, you would still owe much more at the end of six months.  The actual amount depends on the interest rate of the original card.  If your APR was 15%, and you paid the same $200 per month, approximately $100 of that would be applied toward the principal.  So, during the same time period, you would reduce your debt by $600 instead of $1,200.

Adding one more variable into the mix, suppose you find a 0% interest card but there is a 4% transfer fee.  The transfer fee would be $320, but you would be able to pay down your debt an extra $600 during the introductory period, so it is still worthwhile to make the transfer.  You’ll have to do a little math with the actual interest rates and fees involved in the transaction you are considering in order to determine whether you will come out ahead by transferring your credit card balances.