Balance transfer credit cards can seem appealing when high interest charges make it harder to pay down debt. In Canada, these cards may offer a lower promotional rate for a limited time, which can reduce interest costs and create short-term breathing room. However, a balance transfer does not reduce the amount you owe. It only changes where the debt is held and how much interest may apply for a period of time.
For some people, a balance transfer may be a useful tool. For others, it may only delay a larger debt problem. Before applying, it is important to understand how balance transfer credit cards work, what fees may apply, and when another debt solution may be worth reviewing.
What is a balance transfer credit card?
A balance transfer credit card allows you to move debt from one credit card to another, usually to access a lower promotional interest rate for a limited period.
This may help reduce the cost of carrying the debt for a time. It may also make repayment easier if you are consolidating more than one balance onto a single card. However, any remaining balance may begin accruing interest at the regular rate once the promotional period ends, and balance transfer fees may also apply.
How do balance transfer credit cards work in Canada?
In Canada, a balance transfer typically involves applying for a new credit card that offers a promotional interest rate on transferred balances. Once approved, you may be able to move some or all of an existing credit card balance to the new card.
There are several details to review carefully:
Promotional interest rate
Some cards offer a 0% introductory rate, while others offer a low promotional rate for a set period.
Promotional period
The low rate usually lasts for a limited number of months. After that, the regular interest rate may apply to any remaining balance.
Balance transfer fee
Many cards charge a balance transfer fee based on a percentage of the amount transferred.
Eligibility requirements
Approval may depend on your credit history, income, current debt load, and the lender’s criteria.
What are the benefits of a balance transfer credit card?
A balance transfer card may help in the right circumstances.
Lower interest costs for a limited time
A lower promotional rate may reduce the amount of interest you pay while you work on paying down the balance.
Simpler payments
If you have debt on more than one card, combining balances may make your repayment easier to track.
Short-term repayment opportunity
If you have steady income and a realistic repayment plan, a balance transfer may give you a window to make progress.
What are the risks of a balance transfer credit card?
Balance transfer credit cards also have limits and risks that should not be overlooked.
The debt does not go away
A balance transfer does not reduce or eliminate the principal amount you owe.
Fees can reduce the savings
A transfer fee may offset some of the interest savings from the promotional offer.
The regular rate may apply later
If you do not repay the balance during the promotional period, the remaining amount may become expensive again once the regular rate applies.
Ongoing borrowing can make things worse
If you continue relying on credit while trying to pay down the transferred balance, the overall debt problem may continue.
When a balance transfer may help
A balance transfer may be worth considering when:
- Your debt is still manageable
- Your income is stable
- You can realistically repay most or all of the balance during the promotional period
- You are not continuing to rely on credit for everyday expenses
In this situation, the main issue may be interest cost rather than a deeper debt problem.
When a balance transfer may not be enough
A balance transfer may not solve the issue if:
- You are already missing minimum payments
- You would need a long period of time to repay the debt
- You are using credit to cover regular living costs
- You are dealing with collection calls
- You are facing wage garnishment or legal action
- Your credit is too damaged to qualify for a competitive offer
In those circumstances, the problem may be larger than high interest alone. It may be helpful to review broader debt consolidation options rather than relying on another credit product.
Balance transfer credit cards vs. debt relief options
A balance transfer is a borrowing tool. It may lower interest temporarily, but it does not reduce the principal debt.
If the debt is no longer realistically repayable, it may be time to consider whether a formal debt solution should be reviewed.
Consumer proposal
A consumer proposal is a formal process under the Bankruptcy and Insolvency Act that may allow you to repay a portion of your unsecured debt through one structured monthly payment, depending on your circumstances. Only a Licensed Insolvency Trustee can administer a consumer proposal in Canada.
For an official explanation, see the federal government’s overview of a consumer proposal.
Bankruptcy
Bankruptcy is a separate legal process that may be considered when debts cannot realistically be repaid. Whether it is appropriate depends on your income, assets, debts, and overall financial situation.
When to speak with a Licensed Insolvency Trustee
If you are researching balance transfer credit cards because you are having trouble keeping up with debt, it may be helpful to speak with a Licensed Insolvency Trustee at David Sklar & Associates.
A Licensed Insolvency Trustee is the only professional authorized to administer consumer proposals and bankruptcies in Canada. That does not mean insolvency is right for everyone. It means you can receive a full review of your options, including whether a balance transfer, debt consolidation, consumer proposal, or bankruptcy may be appropriate based on your circumstances.
Frequently Asked Questions About Balance Transfer Credit Cards in Canada
A balance transfer credit card lets you move debt from one credit card to another, usually to access a lower promotional interest rate for a limited time.
No. They may reduce interest costs temporarily, but they do not reduce the principal amount you owe.
They may be worth considering if your debt is manageable and you can realistically repay the balance during the promotional period.
Any remaining balance may begin accruing interest at the card’s regular rate once the promotional period ends.
A consumer proposal may be worth reviewing if you cannot realistically repay your debt even with lower interest. Only a Licensed Insolvency Trustee can administer a consumer proposal in Canada.
