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Most of us are familiar with the common kinds of credit cards on the market and how they can help us meet our financial goals. Whether it’s a travel credit card that offers free perks and insurance benefits or a cashback credit card that helps you earn while you spend, it seems like every credit card has its unique purpose.
But what about the ever-so-mysterious balance transfer card? While not as flashy or enticing as the other card types out there, balance transfer credit cards serve a very important (if a tad utilitarian) function.
This function, though, comes with a catch—to get the most out of your balance transfer card, you need to know how to use them.
If you are staring at your screen quizzically, desperately hoping that somebody will tell you what a balance transfer is, hang tight. We’re about to tell you about a very effective but seldom discussed way to kill credit card debt.
A balance transfer credit card refers to a credit card that offers an extremely low interest rate for a set promotional period.
This period is often for six months or one year, and sometimes up to 18 months. This promotional rate is usually 3.99% or lower, although it can sometimes be as low as 0.00% interest.
The idea is to transfer your credit card balance from your credit card with a high regular interest rate and pay the balance off on your new card before the interest rate promotion expires.
It is simply easier to pay off your credit card balance when you are not paying up to hundreds of dollars of interest payments every month.
Balance transfer credit cards sound pretty great so far, right? A credit card with a low or non-existent interest rate designed to make paying off your balance easier? While there aren’t catches per se, there are some things you need to know before you shout, “sign me up!”
When you take advantage of a balance transfer credit card, you are charged a fee in the amount of money you transfer.
For example, if you transfer a credit card balance of $10,000 with a fee of 1%, you will be charged $100.
Most balance transfer credit cards will also come with some form of an annual fee.
As we mentioned earlier, if you do not pay off your transferred balance before the end of the promotional rate period, you will be subject to regular interest rates.
In order to make use of a balance credit card, you will need to have your application approved. This means having a decent credit score and meeting the minimum income requirement for the card.
If you would like to take advantage of a balance transfer offer, you will first need to apply for the card.
Upon application approval, you will then need to request the transfer. This action is typically done by cheque, online, or by telephone.
This will involve giving your new account information to your existing account so that they can perform the transfer.
If you perform this action by cheque, you may have the option to make the cheque made out in your name. Just make sure that it’s not processed as a cash advance.
Canadian credit cardholders have their fair share of options when it comes to balance transfer cards, with standout options including:
The CIBC Select Visa is commonly heralded as the holy grail of balance transfer credit cards, and with good reason!
This card stands out for offering zero interest on any transferred balance for ten months.
If you cannot pay off your balance in these ten months, you will be subject to the card’s 13.99% interest rate, which is still reasonable compared to the average interest rate of 19.99%.
You will only be able to transfer 50% of your credit limit with this card. It is also only available for new cardholders who apply online.
The Bank of Montreal’s answer to the balance transfer card comes from the all-around agreeable BMO Preferred Rate Mastercard. The rate in question is the 3.9% interest rate that lasts for nine preceding months. The card also comes with other benefits such as entertainment discounts and warranty and purchase protection, which is quite uncommon for balance transfer cards.
The BMO Preferred Rate Mastercard does come with a small annual fee of $20, though this is refundable in your first year.
Scotiabank’s balance transfer credit card is the Value Visa, which comes with an impressive line of enticements, including a next-to-zero interest rate of 0% for six months, as well as a relatively low regular interest rate of 12.99%. The standout trait of this card is that it does not come with a balance transfer fee.
The card also notably comes with a discount on rental cars from Avis rental, which makes it the obvious option for frequent travelers.
Although this card from Canada’s online bank darling Tangerine comes with a high regular interest rate that is nothing to write home about, it does come with an impressively low balance transfer promotion of 1.95% for six months. What’s more is that this card will also allow you to earn your money back on regular purchases (up to 2%). It is unusual for a balance transfer card to offer such a perk.
With an income requirement of $12,000, this card is also easier to qualify for than some of the other entries on this list.
Many Canadians often write off balance transfer cards as too niche, and while their focus may be narrow, they play a very important role.
Even when considering balance transfer fees, balance transfer credit cards are a wonderful reprieve for any consumer who finds themselves buried in debt. They can also be the valuable light at the end of the tunnel for anyone who feels kept down by high-interest rates and debt cycles.
A balance transfer can certainly be a good idea, depending on a person’s situation.
If you feel stifled by a credit card with a high balance that accrues nonstop interest, it might be time to transfer this balance to a credit card with a low or non-existent interest rate.
However, it would help if you had a plan for yourself that allows you to pay off the entire balance before your card reverts to its regular interest rate — otherwise, your plan could backfire.
In most cases, when you transfer your credit card balance, you will be required to pay a fee at the time of transfer. This is usually in the form of a percentage of the balance you are transferring. A common transfer fee is 1% (e.x., if the balance you’re transferring is $1,000, you will pay $10). However, in some cases, you may find a balance transfer credit card without a fee.
Again, whether or not you should pay off your existing credit card debt using a personal loan or a balance transfer is a personal matter and doesn’t usually come down to a right or wrong answer.
It will often come down to the method that you qualify for, and your qualification will depend on a variety of factors like credit score, income, and credit usage.
It may be worth comparing the interest rate offered with a personal line of credit with the interest rate you would get on a balance transfer credit card.
While the balance transfer card’s interest rate may be lower, the promotional period is another factor to consider.