The Core Balance Transfer Math
Net savings from a balance transfer = Interest avoided during promo period minus Transfer fee. Interest avoided = (Balance × Monthly Rate × Months kept at 0%) where Monthly Rate = Current APR ÷ 12. Transfer fee = Balance × Fee Percentage.
Balance transfer savings formula applied to $12,000 example
| Component | Formula | Example ($12,000 at 22% / 18 months / 3% fee) |
|---|---|---|
| Monthly interest avoided | Balance × (APR ÷ 12) | $12,000 × 1.833% = $220/month |
| Total interest avoided (18 months) | Monthly interest × 18 | $220 × 18 = $3,960 |
| Transfer fee | Balance × Fee % | $12,000 × 3% = $360 |
| Gross savings | Interest avoided − Fee | $3,960 − $360 = $3,600 |
| Break-even months | Fee ÷ Monthly interest avoided | $360 ÷ $220 = 1.6 months |
Divide transfer fee by monthly interest saved to find your break-even in months. Under 3 months break-even: excellent deal. 3–6 months: good deal. Over 6 months: marginal — reconsider. At $12,000 and 22% APR: $360 ÷ $220 = 1.6 months. Excellent.
When the Simple Formula Overstates Savings
The simplified formula assumes you are paying down the balance and not making new purchases. It also assumes you will hold the balance for the entire promotional period. In reality: (1) As you pay down the balance, each remaining month saves less interest (balance decreases). (2) If you make purchases on the transfer card, those purchases may not have a grace period and may accrue interest immediately. (3) If you transfer only part of your original balance, savings are proportionally lower.
Advanced Formula: Net Present Value of a Balance Transfer
A more precise savings calculation: for each month of the promotional period, calculate interest avoided (based on the declining balance as you make payments). Sum these up, then subtract the transfer fee. This is what balance transfer calculators compute — a month-by-month declining balance model. The simplified formula slightly overstates savings (treats balance as static), but for planning purposes the difference is usually under $200–$300.
Get the Precise Calculation
The calculator uses the full month-by-month declining balance model for exact savings — enter your numbers for the precise figure.