Question

Balance transfer credit cards Zoe Robinson has several credit cards, on which she is carrying a total current balance of $9,500. Her current cards charge her 12% per year. She is considering transferring this balance to a new card issued by a local bank. The bank advertises that, for a 4 percent fee, she can transfer her balance to a card that charges a 0 percent interest rate on transferred balances for the first 9 months. Calculate the fee that Zoe would pay to transfer the balance. $______

Describe the benefits and drawbacks of balance transfer cards.

Answer 1

Given,

Current balance (to be transferred)= $9,500

Rate of fee for transfer= 4%

Therefore, fee that Zoe shall pay for balance transfer= $9,500*4% = $380.

Benefits and drawbacks of balance transfer:

Balance transfer is useful in case the interest rate on the existing card is substantially higher than the rate charged for the new card. This is more important in case the borrower prefers to pay the balance over a long period, by making minimum payment only immediately.

However, in most of the cases of balance transfer, the new card with lower interest rate or zero rate for introductory period will be charged a fee. This fee will be proportional to the amount transferred. Hence it should be ensured that the total cost of new card is less than that of the existing card. This largely depends on how long it will take to pay off the balance.