What is a balance transfer?

Take advantage of a balance transfer offer and save money by reducing the interest you pay.

Updated

Balance transfers allow you to take your debt from one or more credit cards and move it to another card. Typically the transfer comes with a fee of 1-3% of the total amount of debt you’re moving to the card, but this fee may be offset with a low or 0% intro APR promotion. That said, some providers will charge no balance transfer fee.

A balance transfer can be a great option if you’re currently paying heavy interest on your credit card. Taking advantage of a 0% or low intro APR can help you save hundreds – or even thousands – of dollars and help you pay off your debt much faster.

how balance transfer work

How balance transfers work

Let’s say Mary has a credit card with a $5,000 balance and a 20% interest rate.

A 20% interest rate is pretty standard, as most cards in Canada come with 19.99% APRs. Interest is compounded daily, which means that while Mary is trying to pay off her debt, interest on her balance keeps accumulating.

But this is where a balance transfer card can come in handy. For example:

  • Mary finds a card that offers a 0.99% intro APR for six months on balance transfers.
  • She transfers her current balance of $5,000 to the new card. She also pays a fee of 1% of the transfer, which comes out to $50.
  • The balance on the new card will accumulate interest at a rate of 0.99% for six months. With such a low APR, Mary can focus on paying down the principal balance instead of paying high interest.
  • However, to really take advantage of the offer, Mary will need to avoid spending money on the card and ultimately adding more to her debt. Plus, she will need to pay off the balance in the first six months to avoid the revert rate. The revert rate is the APR that will kick in once the promo period ends (in this case, six months).

Look how easy it can make paying down your debt: 1. Find a balance transfer card that meets your needs. 2. Confirm how much you're eligible to transfer. 3. Submit your application and transfer amount. 4. Wait five to seven days for application approval. 5. Confirm your transfer — and start saving. Image: Supplied

Balance transfers: Let’s dive into the basics

A balance transfer is an efficient option to help pay off one or multiple debts. Before applying for a balance transfer credit card, take note of the following so you’re not taken by surprise:

You may pay a fee for the balance transfer.

When you move your balance to a new card, you might have to pay a balance transfer fee, which is usually 1-3% of the total amount transferred – although some providers won’t charge a transfer fee at all. As an example, let’s say a card’s balance transfer fee is 3%. If you’re transferring $10,000, you’ll pay a fee of $10,000 x 0.03 = $300.

You can get a great APR on your transferred balance.

A good balance transfer card will offer a low intro APR for a few months on the debt you transfer. An exceptional balance transfer card will have a longer intro APR and an APR of 0%. Instead of getting a 1.99% intro APR for six months, for example, you could get a 0% APR for 10 months.

After the introductory APR ends, you’ll start paying interest.

Some people forget to keep track of when their introductory APR expires, and are surprised when they’re charged interest. Consider how long your low intro APR lasts and if you can pay off your balance within that time. Note down the end date of the intro period so that you’re not taken by surprise.

It’s important to make monthly payments on time.

Here’s one of those conditions that might throw you for a loop: You only get the nice low or 0% intro APR if you make your monthly payments on time. Even one late payment may get your promo APR revoked – two late payments will definitely get it revoked.

The process can take a while.

Balance transfers are usually completed within seven to 14 days of the card being activated. In the meantime, keep up with your current credit card payments to avoid damaging your credit score.

Having good credit helps.

Credit card providers usually require good credit to initiate a balance transfer. However, if you look around, you can find some decent balance transfer cards for poor credit.

You can transfer more than credit card debt.

Credit card debt is the most common debt moved with balance transfers, but you may also be able to transfer personal loans, auto loans and mortgages.

How to choose the right card

Finding the right balance transfer credit card can be your golden ticket to getting out of debt faster – and cheaper. But finding the right card for you depends on the amount of debt you want to transfer, your credit score and any other perks that you’re looking for in a credit card.

When you’re comparing balance transfer cards, consider the introductory APR and how long it lasts, any fees you’ll pay for the transfer itself, the annual fee of the card, the revert rate once the promo APR ends and other benefits like rewards.

Compare balance transfer credit cards

Name Product Purchase Interest Rate Balance Transfer Rate Balance Transfer Fee Annual Fee Minimum Income Reward Description
BMO Preferred Rate Mastercard
12.99%
3.99% for the first 9 months (then 12.99%)
1%
$20
$15,000
Take advantage of an introductory balance transfer offer, annual fee waiver in the first year, and low purchase and cash advance interest rates.
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
BMO Rewards Mastercard
19.99%
1.99% for the first 9 months (then 22.99%)
1%
$0
$15,000
Get 1 BMO Reward point for every $1 spent on eligible purchases, and get 2 BMO Rewards points for every $1 spent at participating National Car Rental and Alamo Rent A Car locations.
Earn a bonus of up to 20,000 BMO Rewards points. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO AIR MILES Mastercard
19.99%
1.99% for the first 9 months (then 22.99%)
1%
$0
$15,000
Get 2 AIR MILES for every $20 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $20 spent elsewhere.
Earn 800 AIR MILES Bonus Miles. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO CashBack Mastercard
19.99%
1.99% for the first 9 months (then 22.99%)
1%
$0
$15,000
Earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases.
Get up to 5% cash back on all eligible purchases in the first three months of card membership (up to a maximum spend of $2,000, and earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases thereafter). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
BMO AIR MILES Mastercard For Students
19.99%
1.99% for the first 9 months (then 22.99%)
1%
$0
$15,000
Earn 2 AIR MILES for every $20 spent at eligible AIR MILES partners, and earn 1 AIR MILE for every $20 spent elsewhere.
Earn 800 AIR MILES Bonus Miles. Plus, get a 1.99% introductory interest rate on balance transfers for 9 months. A 1% fee applies to balance amounts transferred.
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Compare up to 4 providers

The balance transfer process

Starting a balance transfer is simple. Here’s how the process works:

  1. Choose the best balance transfer card for your needs. Look at factors like how long the promotional APR lasts, what the APR is, what fees you’ll pay and what rewards you’ll receive.
  2. Check how much you can transfer. There may be a maximum limit set on how much debt you can transfer to the card. Before submitting an application, check how much you’re allowed to transfer.
  3. Submit your application. First, make sure you meet the eligibility requirements for the card, then gather the required documents, fill out the application and press submit.
  4. Sit tight and wait for the transfer to process. This usually takes between seven to 10 days, however you may receive a response sooner.
  5. Confirm your transfer. Many providers require you to receive and activate the card before they will initiate the balance transfer process. Keep paying the balances on your old cards until you’ve confirmed that the balance transfer was completed as expected.
  6. Pay your debt off in full within the intro period. It’s important to try to pay off your initial balance transfer amount before the intro period ends – or else you’ll start to accrue interest at the much higher revert rate.

What to watch out for

A 0% or low introductory interest rate on a balance transfer for several months might sound too good to be true. So what’s the catch?

There are a few incentives for credit card companies to offer low APR promotions on balance transfers. Here are a few of them:

    • It’s a cheap way to get a new customer. It can cost a lot for a credit card company to lure in new customers. Instead of spending all those marketing dollars to reach you, a card provider might offer a really good balance transfer promotion instead.
    • After the low or 0% APR promotion ends, you’ll start paying interest on your balance. Once that low or 0% APR promo ends, your remaining balance is subject to a much higher interest rate, known as the revert rate. A credit card company can make hundreds or even thousands of dollars from you in interest charges. To avoid this, pay off your entire balance before your intro APR ends.
    • You might make purchases with the credit card. Your primary reason for getting a balance transfer card may be to get help paying off your debt — but once you make a purchase with your credit card, your new purchases will accrue interest at the regular purchase rate.

How can a balance transfer help me save money?

A balance transfer credit card is designed to give you breathing room to pay off your debt interest-free (or at a low rate) for a set period of time, which can last up to 10 months, sometimes longer. Depending on the size of your debt and the interest rate you’re currently paying, this could save you hundreds or even thousands of dollars.

Before applying for a balance transfer credit card, compare your options to find the right credit card for your needs.

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