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Have you found yourself falling behind on your credit card payments? Or do you have some credit card debt hanging over your head? If so, you’re probably cursing the fact that your hard earned money is going to interest payments.

And if you’re in this position, you may have been told that a balance transfer credit card could be a good solution.

However, if you’re not well versed in credit cards or credit card terminology, you may have some questions about balance transfers: what are they and how do they work?

We’ll do our best to answer those questions.

What is a balance transfer credit card?

A balance transfer is when you take some or all of your debt, and you transfer it to a different lender – usually, this is done to consolidate loans and/or to save in interest.

In terms of credit cards, a balance transfer allows you to take a pre-existing credit card balance and transfer it to another credit card ‒ particularly a lower interest card (or a card that has a promotional balance transfer rate). The goal is to relieve the burden of high interest rates, and help you get your credit card debt paid off faster.

Depending how much debt you have, this could save you hundreds…or even thousands.

How do balance transfers work?

There are two different types of credit cards you may want to consider in a balance transfer situation:

  • A credit card that is offering an introductory balance transfer rate – In some cases, credit cards will offer an introductory rate that can be anywhere from 6 to 12 months and will give you an extra low balance transfer rate between 0% and 7.99%.
  • A credit card that has a permanently low interest rate – In other cases, there could be cards on the market that have a permanently low rate for all purchases and balance transfers, with no time limit.

If you’re looking for the lowest rates you can get, you will typically need to apply for a new credit card – one that offers a low introductory balance transfer rate for new customers.

The downside of this, however, is that there is a time limit.

Let’s say, you’re considering a card with an intro rate of only 6 months. If you’re crunching the numbers and it looks like there is no way for you to get your debt paid off in under a year ‒ then you probably should keep looking.

What happens when a balance transfer promo ends?

The reason that limited time offers are not always the best, is because once your introductory time is over, the interest you are being charged jumps up to whatever the normal balance transfer rate is. Often the cash advance and balance transfer interest rate is more than the purchase interest rate ‒ and can be up to 23%.

So, if you are unable to get your balance transfer paid off within the card’s limited time offer, you could end up in an even worse place. In this case, your best bet is to go with a card that has a permanently low interest rate, like:

…Or a card that has a low introductory promotional period:

The MBNA True Line Mastercard has a balance transfer promotion of 0% for 10 months – the best balance transfer offer available right now, plus it also has a low permanent rate of 12.99%.

The MBNA True Line Gold comes with a balance transfer offer of 0% for 6 months, but comes with a lower permanent rate of 8.99%.

Or another option would be to simply apply for a new card, with a new introductory balance transfer rate…why not keep this balance transfer train going?

What happens if I miss a payment during a promotional period?

If you happen to miss a minimum payment during your promotional period, your interest rate is going jump up to your card’s normal balance transfer rate. Which, unless you have a credit card with a permanently lower rate, is going to be around the 23% mark.

If you’re absolutely committed to paying on time and you have a system in place to remind you when you need to make your monthly payments, then a promotional balance transfer could work.

If you’re forgetful or sometimes find yourself missing credit card payments, then an introductory balance transfer offer may not be your best option.

Can I make purchases with a balance transfer card?

As long as your credit card is not maxed out, you will be able to use your balance transfer card for purchases ‒ however, this is something you should avoid. As per the Canadian government:

Typically, your minimum payment will apply it to the portion of your balance with the lowest interest rate. Any amount you pay over the minimum payment applies in one the following two ways:

  • to the portion of the balance with the highest interest rate
  • proportionally to the entire balance

A credit card issuer that is a federally regulated financial institution can decide how it will apply your minimum payment to your balance.

Check your credit card agreement or ask your credit card issuer how it applies a payment to your balance.”

Most credit card companies, MBNA / TD, Amex, and RBC included, will allocate any payment “proportionally to the entire balance.”

What does that mean? Well, let’s say you have made an $800 balance transfer to a card and then you decide to make a $200 purchase. 80% of your balance is getting charged at your promotional balance transfer rate, and 20% will be getting charged at your normal purchase interest rate.

You then decide that you’re going to make a $200 payment on your card. And while, in an ideal world that $200 would all go to the $200 purchase that is being charged 20% interest, that isn’t how credit cards work. Instead, 80% of that $200 will go toward your balance transfer, and only 20% will be going towards your high interest purchase.

With this ratio payment, part of that $200 purchase that you made will be around until your entire balance is paid off…making your $200 purchase cost you much more in the long run.

Limited time low interest, but what’s the catch?

One thing to remember is that many cards will charge you a balance transfer fee.

While 10 months of 0% interest may seem too good to turn down, always remember to read the fine print. Banks will charge anywhere from 0% to 3% for balance transfers.

Sure, this will often still be a better deal than months of 19.99% interest, but when it comes to choosing which balance transfer card is the best fit for you, these fees are important to keep in mind. Transferring money at 3% could really add up quickly.

The good news is the best balance transfer promotions also usually come with lower than normal balance transfer fees. Hardly seems fair to those paying higher rates, but that’s often the case.

Can I earn rewards on balance transfer cards?

There are some cards out there that will give you a great balance transfer rate, and also allow you to earn great rewards. Rewards, however, are only given on purchases, and they will not be given for any balance transfers or cash advances.

A suggestion: skip the rewards for now, and focus on the savings instead ‒ make your balance transfer, pay off your full balance in full, and then it makes sense, look into rewards later.

Can a balance transfer be made between credit cards from the same bank?

Unfortunately, no. Balance transfers are made by transferring a loan from one lender to another. So, if you’re carrying credit card debt on an American Express credit card, you will need to apply for a credit card from a different issuer, in order to transfer your balance.

This can be tricky when you remember that TD and MBNA are part of the same company. But the nice thing about the MBNA True Line Mastercards is that they also allow you to do a one time transfer of funds to your chequing account. So, you would be able to transfer the money into your account and then use it to pay off your TD credit card.

Some savvy credit cardholders will even transfer their TD debt to another card, and then transfer it to the MBNA True Line Mastercard. If this is the path you want to take, make sure you’re good at juggling credit cards and watch out for all those transfer fees.

Best Balance Transfer Cards in Canada: Head to Head

Now that you have the basics, here are the best balance transfer cards on the market.

For the MBNA cards listed, you can:

  • transfer money to a chequing account and consolidate all of your debt, or
  • the balance transfer can be made by logging into your online banking.

For the Scotiabank Value Visa Card:

  • balance transfers can be done by logging into your Scotiabank online account, and
  • you can transfer up to a maximum of $49,999.
  • 0% interest on balance transfers for 6 months
Credit Card Promotion and Information Annual Fee Balance Transfer Fee Learn More
MBNA True Line Mastercard
  • 0% interest on balance transfers for 10 months
$0 3% Learn more
MBNA True Line Gold Mastercard
  • 0% interest on balance transfers for 6 months
$39 3% Learn more
Best Western Mastercard
  • 1.99% interest on balance transfers for 10 months
$0 1% Learn more
Scotiabank Value Visa Card
  • 0.99% interest on balance transfers for 6 months
  • Has a permanently low interest rate of only 12.99%.
$29 3% Learn more

Your turn

Have you ever done a balance transfer before? How did it work for you?

Do you have any tips for fellow readers who are considering a balance transfer?

Let us know in the comments below.