101 guide to balance transfer cheques
Balance transfer cheques are rarely used these days, but we'll show you how to use them and what to watch out for when you receive one.
Have you ever received a blank cheque from a credit card company? Before you take it to the bank, learn more about what these balance transfer cheques mean and how to use them.
What are balance transfer cheques?
The first thing to understand is that balance transfer credit cards are used to consolidate all of your debt into one single place. Often, a credit card company will make you an offer on a new balance transfer credit card by sending you a blank cheque in the mail. This cheque will likely have a low APR for a specified time period, which should be stated on the offer.
Is this a good deal? It could be. By taking this cheque to the bank, you agree to transfer your current credit card debt balance to a new credit card offered by this company.
Balance transfer cards often boast APRs starting at 0% — depending on your creditworthiness. If the APR is not 0%, you may be offered a low APR of 1.99% or higher. Introductory periods for balance transfer cards typically last between 3 and 12 months.
While balance transfer cheques were relatively popular a few years ago, they are not as common now. Balance transfer credit cards, however, are as popular as ever.
How can you use a balance transfer cheque?
If you have a balance on another credit card and are paying a high monthly APR, you could possibly benefit from a balance transfer cheque. There are two ways to use a balance transfer cheque: you can use the cheque by filling it out for the balance on your high-APR credit card or you can write the cheque to yourself for a cash advance. This transfers your debt to the cheque issuer for the offer on hand.
Pro tip:If you’re unsure whether a cheque is going to act as a cash advance with high fees, call the bank that sent it to you. It’s better to find out before you cash it.
Is using a balance transfer cheque a good deal?
Using a balance transfer cheque can be a good deal if the interest rate is lower than what you’re paying now. Here are some factors you should consider before taking your balance transfer cheque to the bank:
- Length of the introductory period. Introductory promo periods for the APR will vary based on the credit card provider and your creditworthiness, but typically last from 3-12 months, or sometimes longer. Shop around for one that suits your financial needs. Perhaps a narrow window is all you need to pay off a smaller balance, or maybe you need a longer time period to cover a larger debt.
- Intro APR. The APR will differ between providers and based on your creditworthiness, however you may be offered as low as 0% or as high as 8%. Typical rates generally sit from 0-3%.
- Revert APR rate. After the introductory period ends, the provider will apply what people call a “revert rate” to your remaining balance. This interest rate will likely be a lot higher, sitting between 15% and 36%. If you know you’ll still have a large balance by the end of your promo period, it may help to look for a balance transfer card with a lower APR for a longer period of time, as opposed to a 0% APR for a shorter time.
Balance transfer vs convenience cheques
If you receive a cheque in the mail from your bank or credit card provider, it could be a convenience cheque. These are used to make purchases, or as cash advances instead of using a credit card. But be careful – they often don’t come with any APR benefits. Convenience cheques can accrue the same high rate as a cash advance, sometimes as high as 30%. You could also be charged a convenience fee of around 4% of the amount of the cheque.
One way to tell the difference between a balance transfer cheque and a convenience cheque is that a balance transfer cheque usually offers some sort of incentive, such as a lower APR, a long introductory period and/or no annual fees. The cheques often come from a bank or credit card company that you don’t already have a balance or account with.
Which is better really depends on your situation. If you’re working on building your credit and can’t qualify for another credit card, using a convenience cheque may be a suitable option for you. Although, you could pass on the convenience cheques and simply save on fees by using the credit card for purchases.
Balance transfer cheques are better if you want to change credit cards to get a better APR or you are seeking an extended time period to pay off your debt.
What to watch out for
- Change from an intro APR to a higher one. Once your introductory APR window closes, you’ll revert to a higher APR. Any balance you haven’t yet paid off begins earning interest just as it would with any other credit card.
- You’ll pay for cash advances. Balance transfer cheques that act as a cash advance carry a higher interest rate.
- Transaction fees and finance charges may apply. You could be on the hook for transaction fees of as high as 5% of the borrowed amount.
How to stop these offers from coming
Balance transfer cheques can be tempting to use and have the potential to get you into financial trouble. They also can lead to fraud if someone finds them and cashes them in your name. Always shred these cheques if you don’t plan to use them.
If you’re not interested in balance transfer cheques clogging up your mailbox, tell the credit card company to stop sending them. Send the credit card issuer a secure online message, mail them or call them directly. If it’s a local bank, walk into the branch and request that you no longer get their promotional mail.
Looking into the different types of balance transfer cards and comparing them against balance transfer cheques can make your decision much easier. While the option to convert your debt to a lower APR is tempting, consider your current financial situation to make sure the credit card or cheque you receive suits your debt and spending needs.