What Is a Balance Transfer?

What is a balance transfer? It's a financial strategy that lets you transfer existing debt from one or more high-interest credit cards to a new card that offers low or 0% interest for a set period. This allows you to pay down your debt at a much lower interest rate.

The top balance transfer credit card is the MBNA True Line Mastercard, which offers 0% for an impressive 12 months.

Balance transfers can help you save significant money while paying down your debt, but this debt-reduction strategy isn't helpful if you don't know how to use it. This guide will help you understand the ins and outs of balance transfers and explain how to get started.

What is a balance transfer?

A balance transfer takes place when you open a new credit card and move your existing credit card debt to the new card. This only works with a specific type of card: those with special interest rates and balance-transfer timelines. These special rates are usually promotional, not permanent.

During the promotional period, your credit card balance will be charged very little, if any, interest. This gives you a window of time to focus on paying down your debt.

This method also streamlines your debt repayment by consolidating several credit card payments into a single one.

Important: You can't open a balance transfer card with the same card issuer as your existing credit cards.

How much can you save with a balance transfer?

It's hard to put an exact figure on how much you'll save, since it depends on your full amount of debt, current interest rates, the balance transfer rate, and how quickly you can pay off the debt.

Still, looking at an example helps:

• Taylor has two credit cards. Both charge 19.99% interest, and her total debt has reached $4,000.
• She pays $400 each month towards the combined balance.
• At this rate, it will take her 12 months to pay off both cards.
• It would also mean paying a total of $411 in interest.

Using this same example, let's see how a balance transfer can make a difference:

• Taylor finds and opens a balance transfer credit card offering a 0% promotional interest rate for the first 6 months. There's also a 3% transfer fee.
• She pays off her entire debt in 11 months.
• She pays a total of $171 in interest and $120 in transfer fees.

In this scenario, Taylor saves $240 in interest. After the transfer fees, she saves a total of $120.

Why would someone consider a balance transfer?

A balance transfer is a fantastic strategy for someone with a clear plan to pay down their debt. Maybe they've just gotten a job with a higher income and will have more resources to pay off credit card debt, or maybe someone is tired of paying multiple credit card bills and wants to get a handle on their finances.

However, a balance transfer only works if you change your spending habits. Continuing to rack up charges on your old or new cards defeats the purpose.

Remember, the balance transfer simply gives you an opportunity to quickly pay down existing debt. If you're adding debts to any of your open credit cards, you'll find it hard to take advantage of the low balance transfer rate, which only lasts a short while.

How to transfer a credit card balance

At first, balance transfers might seem like a lot of effort, but they're worth it if it means you can pay down debt and save on interest. Here's what you need to do:

1. Apply for a balance transfer card

Research balance transfer cards and choose the one that best suits your needs. Fill out an application and wait for approval. The card issuer will outline any next steps.

2. Decide which balance to transfer first

If you only have one credit card with a balance, that's obviously the debt you'll transfer. But if you have multiple cards, start by moving the debt that has the highest interest rate. Calculate the transfer fee to make sure you're saving enough to be worth it.

You should also check the credit limit on the new balance transfer card to ensure you have enough room to move the debt. Be aware that the balance transfer fee counts toward your credit limit.

3. Initiate the balance transfer

You'll typically make a balance transfer requisition online, in your issuer's app, or over the phone. Depending on your issuer, you may be able to use special cheques made out to the credit card company.

4. Wait for everything to process

Again, it depends on the card issuer, but balance transfers usually take at least two weeks to process. Once it does, you'll see that the old account is paid off, and your new credit card will show the debt balance.

5. Pay down your balance

As soon as your debt shows up on the balance transfer card, you're on the clock and should begin making payments as soon as possible. During the promotional period, your payments go directly toward the principal rather than interest — so pay as much as you can, as often as you can.

After the promotional period ends, the regular rate for balance transfers will kick in. Since these are sometimes higher than the standard purchase rates, you should continue to prioritize repayment, so your balance doesn't grow.

Pros and cons of balance transfers

Yes, balance transfers can save you a lot of money, but fees and repayments can be tricky to manage. Here's a look at some of the main benefits and drawbacks:

Pros:

• Better interest rates (which means more savings)
• Promotional periods can help accelerate debt repayment
• Consolidation makes debt easier to manage
• Reduces credit-utilization ratio
• Can improve your credit score

Cons:

• May require a high credit score
• Transfer fees can be expensive
• Missed payments can result in large fees
• Can't/shouldn't make new credit card purchases

Most of these cons are only applicable if you don't use the balance transfer card responsibly. That said, if you have a debt management plan in place and you're resolved to stick to it, a balance transfer can be a very responsible – and valuable – financial strategy.

Top credit cards for balance transfers

Now that you have the basics, here are the best Canadian credit cards with balance transfer offers:

FAQ

What is a balance transfer? How does it work?

A balance transfer involves moving debt from one or more credit cards onto a new card. First, you research and choose a credit card with a promotional balance transfer interest rate, then move your existing credit card debt to the new card. The old debt is paid off, and you can repay the new card at the lower rate.

What is the downside of a balance transfer?

Without a dedicated repayment plan, you can still fall behind and not pay down your debt within the low interest period. It can also be tricky to qualify for balance transfer cards in the first place, as they may require high credit scores and/or income levels.

Do balance transfers hurt your credit score?

Applying for a new balance transfer credit card can temporarily cause your credit score to drop a few points, just as applying for any type of credit card can. However, as long as you make regular, timely payments over the next few billing cycles, your score should recover.

What is the point of a balance transfer?

The point of a balance transfer is to save money on interest while paying down debt. By moving your balance to a card with a low or 0% promotional rate, you can pay off what you owe faster. This type of debt consolidation is also easier to manage than making several separate monthly payments.

What is a balance transfer credit card?

A balance transfer card is designed to help you tackle debt by offering a low or 0% interest rate for a limited introductory period. This means your payments go directly toward your balance rather than interest. Once the promo period ends, the card's regular interest rate applies.

Is there a TD balance transfer credit card?

TD doesn't advertise any balance transfer cards, but it may occasionally send balance transfer offers to existing clients. Plus, the TD Low Rate Visa Card offers 0% interest on new purchases for the first six months, followed by a low regular interest rate of 12.9%.