Fee against interest, month by month: when a 0 per cent transfer saves money, and the one payment figure to work out before you apply.
Usually yes, if you clear the balance before the 0 per cent period ends. Moving £4,000 from a card at 22.9 per cent to an 18-month 0 per cent offer with a 3 per cent fee costs £120, against £819 of interest for staying put while paying £250 a month: a saving of £699 and three months sooner debt-free. The deal only goes wrong when the payment is too small to finish inside the offer.
Worked in full in Personal Finance for Beginners by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
All terms are illustrative; read your own offer for the fee, the length of the 0 per cent period and the rate it reverts to. Interest is modelled the simple way most statements approximate it: each month, the balance times the annual rate divided by twelve, charged before the payment lands. The exact daily method is in how credit card interest is calculated.
| Input | Value |
|---|---|
| Balance on the current card | £4,000 |
| Current card APR | 22.9% |
| Monthly payment, fixed | £250 |
| Transfer fee, share of balance moved | 3% |
| 0 per cent period, months | 18 |
| Rate after the offer ends | 24.9% |
On the current card, the first month's interest is £4,000 × 22.9% ÷ 12 = £76.33. Of the £250 payment only £173.67 reaches the debt. Run that forward month by month and the balance clears in 20 months, with £819 of interest along the way: £4,819 paid in all.
Monthly interest = balance × APR ÷ 12
New balance = balance + interest − payment
Month 1: 4,000 + 76.33 − 250 = 3,826.33, and so on until the balance reaches zero
Excel, months to clear: =NPER(22.9%/12, -250, 4000)
The fee is added to the balance on day one: 3 per cent of £4,000 is £120, so the new card starts at £4,120. At 0 per cent every penny of the £250 reduces the debt, and £4,120 ÷ £250 = 16.48 payments, so the balance is gone in month 17, a month before the offer ends. The total cost is the £120 fee and nothing else.
Cost of the transfer = fee + interest after the offer ends
= 120 + 0 = £120
Saving = 819 − 120 = £699, and 17 months instead of 20
Payment needed to clear inside the offer = 4,120 ÷ 18 = £228.89 a month
That last line is the one to compute before you apply. Divide the balance plus the fee by the number of 0 per cent months. If you can pay at least that every month, the fee is the whole cost of the transfer. If you cannot, read on.
Suppose you can only manage £150 a month. Staying put, the debt takes 38 months and £1,643 of interest. With the transfer, 18 payments of £150 clear £2,700, leaving £1,420 when the offer ends. That remainder then accrues at 24.9 per cent, two points above the old card, and takes until month 29 to clear, with £178 of interest. The transfer still wins: £298 of total cost against £1,643, a saving of £1,345. What changes is that part of the debt outlives the offer, and on a worse rate than you started with.
The fee and the length of the 0 per cent period trade against each other. The grid below keeps the £250 payment and the 24.9 per cent reversion rate and shows total cost, fee plus interest, against the £819 of staying put.
| Transfer fee | 6 months at 0% | 12 months | 18 months | 24 months |
|---|---|---|---|---|
| 0% | 331 | 55 | 0 | 0 |
| 3% | 485 | 188 | 120 | 120 |
| 5% | 589 | 277 | 200 | 200 |
Read across a row and the cost stops falling once the offer is long enough to clear the balance: on these figures, 18 months and 24 months cost the same, so extra months beyond what you need are not worth a higher fee. Read down a column and, once the offer is long enough to finish in, the fee is the whole cost. A 5 per cent fee on a 6-month offer still saves £229 against staying put, but a no-fee 12-month offer beats it by £534.
The break-even is simple when the balance clears inside the offer: the transfer pays whenever the fee is less than the interest you would otherwise pay. Here that is £819, or 20.5 per cent of the balance, so no ordinary transfer fee comes close. The question is rarely whether the fee is worth it. It is whether you will finish in time.
A balance transfer is a tool for the plan, not the plan. It works when it sits inside a budget that has already found the £229 a month.
The blank calculator in the free workbook for this case shows, for any one debt, how much of your payment is interest and how long it takes to clear. If you carry several debts, see debt snowball vs avalanche for the order to clear them in.
Compare the fee plus any interest after the offer ends with the interest you would pay by staying put at the same monthly payment. On £4,000 at 22.9 per cent paid at £250 a month, staying costs £819; a 3 per cent fee costs £120, so the transfer saves £699 as long as the balance is cleared within the 0 per cent period.
Divide the transferred balance plus the fee by the number of 0 per cent months. For £4,000 with a 3 per cent fee over 18 months that is £4,120 divided by 18, or £228.89 a month. Paying only the minimum leaves a balance that reverts to the full rate when the offer ends.
The remaining balance starts accruing interest at the card's standard rate. Paying £150 a month on a £4,120 transfer leaves £1,420 after 18 months; at 24.9 per cent it takes until month 29 to clear and adds £178 of interest. That is still far cheaper than £1,643 of interest staying on a 22.9 per cent card.
Getting out of debt is worked in the workbook for chapter 7 of Personal Finance for Beginners. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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