Balance transfer credit cards can help you get some air when you’re drowning in high-interest debt. By paying off one credit card with another that has a much lower rate, it can dramatically lower your monthly interest charges, and it becomes easier to get back on top financially.
There may be a fee to carry out the transfer, but if you’ve really lost control of a credit card balance, a balance transfer remains a very effective tool.
How much does a balance transfer cost?
Generally, the transfer fee is 2% of the transferred balance. Some cards’ promotional offers waive these fees if the transfer is made within a certain period of time after opening the account.
Ideally, you should find an offer that will allow you to maximize the interest savings. Keep an eye out for welcome offers that provide extremely low rates, sometimes even 0%, for a period of a few months.
For example, a credit card balance of $5000 at 20% interest that is transferred to a 0% account for 6 months will save approximately $500 during that period.
The common trap to avoid
Making a balance transfer gives you an opportunity to reduce interest temporarily in order to regain control of debt and eliminate it for good. But it’s also a way to get into more debt if you’re not careful.
Many people fall into this trap: we pay off the first card with the second one, and after the welcome offer’s reduced rate months are over, we find ourselves with two cards that are racked-up! Not only did we get into more debt, but we now have to pay high interest on both balances!
There’s no miracle recipe to prevent finding yourself in this predicament. All it takes is to establish a repayment plan and have the discipline to stick to it.
Sure, you can start the process all over again with a new discounted balance transfer offer, but eventually, as your credit history deteriorates, it will become difficult to get approved for new financing.
3 steps to getting the most out of a balance transfer
To transfer your balance from one credit card to another, it is recommended that you follow this advice to get the most out of it.
- List your credit card accounts. Note that the debts that are really costing you are not the ones with the biggest balance, but the high-interest ones.
- Find out about the fees and penalties for the new card that is used to pay off another. For example, a 3% transfer fee on a $5000 balance will cost $150 on the first statement.
- Make your minimum payments every month. Yes, even with a 0% promotional rate! Omitting a minimum monthly payment can result in significant fees.
Does a balance transfer affect my credit rating?
There are a few things you can do with a balance transfer that can affect your credit score in the short term. But let’s be frank: if you need a low-rate balance transfer to take out unmanageable credit card debt, now is definitely not the time to shop for a mortgage or car loan.
When done correctly, taking advantage of the low-rate period to repay as much as possible, a balance transfer is a good way to improve your credit rating by lowering your debt ratio.
The Best Balance Transfer Credit Cards
With the help of our credit card comparison tool, we’ve compiled the best balance transfer offers currently on the market.
Best interest rate on purchases
The National Bank Syncro Mastercard offers a “variable base rate + 4%” for a minimum rate of 8.90%. The annual fee is $35.
It has purchase protection, which covers your new purchases in the event of loss, theft or damage, and an extended warranty on several items purchased with the card. With zero liability protection, you’re not responsible for unauthorized transactions made with your card.
You can enjoy unique experiences thanks to Priceless Cities. This program enables you, among other things, to upgrade your hotel room and obtain special menus.
Also, check out the 10 best low interest credit cards in Canada
Best promotional offer
Scotiabank Value Visa
The Scotia Value Visa credit card has a promotional interest rate of 0.99% on balance transfers for the first six months. Thereafter, the interest climbs to 12.99%. It has an annual fee of $29.
With this card you can take out optional insurance. This protection can provide financial assistance to you and your family by paying off the balance or covering your monthly account payments following unexpected events.
You can request an additional card for free. Lastly, you use your Scotia Value Visa credit card for a 25% discount off the base rates for car rentals with AVIS or Budget in Canada and the United States.
Best rewards card
RBC RateAdvantage Visa
The RBC RateAdvantage Visa’s interest rate is the prime rate plus a variable rate between 4.99% and 8.99%, depending on your credit rating. You don’t have to pay an annual fee.
You get purchase protection, which automatically covers purchases made with the card against loss, theft or damage for up to 90 days. The extended warranty doubles the original Canadian manufacturer’s warranty for up to one additional year. You can purchase several other types of optional insurance, including BalanceProtector Insurance, Identity Theft Protection, RBC Roadside Assistance, Travel Insurance, and others.
Use this card to benefit from instant savings on fuel at Petro-Canada. By linking your card to their points program, you instantly save 3¢ per liter on fuel and earn 20% more Petro-Points.
Transferring a balance from a higher interest rate credit card to a lower interest rate card can be a great way to save money and get out of debt faster. However, it’s important to do the math to make sure you make an informed choice.
Learn more on how to choose a credit card in Canada! For further information to help you make your decision, use our credit card comparator tool, which explains and compares credit card options.
This article was compiled by Hardbacon, which has designed a credit card comparator listing hundreds of Canadian credit cards. Hardbacon also helps you save on savings accounts, chequing accounts, online brokers, robo-advisors, life insurance, mortgages and personal loans. If you want to go one step further and take control of your finances, you should download Hardbacon’s mobile app, which links to your bank and investing accounts, helps you plan for your financial goals, create a budget and invest better.