Balance transfers in Canada: how they work and what they really cost

How a balance transfer works

The Financial Consumer Agency of Canada (FCAC) describes a balance transfer simply: you move your balance from an old credit card to a new one. The new card pays off the old balance, and you now owe that amount to the new issuer instead.

Most people do it to swap a high interest rate for a low one for a while. Many issuers offer a lower or 0% introductory rate on transferred balances, and FCAC says that promo usually lasts 6 to 18 months.

What it really costs

A 0% offer is rarely free. FCAC says the transfer fee is usually a percentage of the amount you move. Its own example: moving a $1,000 balance with a 3% fee costs $30. On the offers in our table, fees run from 1% to 3%, with a minimum of $3.50 to $5 per transfer. RBC charges a flat $5 per transfer instead of a percentage.

The second cost arrives when the promo ends. Whatever you still owe moves to the card’s regular rate for balance transfers, which is often its cash advance rate. Scotiabank’s Value card goes to 13.99%, while the Scotia Momentum Visa card goes to 22.99%. A transfer card with a low ongoing rate gives you a softer landing if you don’t finish in time.

How your payments are applied

This is the rule that catches people out. If your new card carries more than one balance, say a transferred balance at 0% and new purchases at 20.99%, FCAC says your minimum payment typically goes to the part with the lowest interest rate. That’s the promo balance.

Anything you pay above the minimum must go one of two ways: to the part of the balance with the highest interest rate, or spread proportionally across the whole balance. Your cardholder agreement says which method your issuer uses.

Worked example: $5,000 at 20.99%

Say you owe $5,000 on a card that charges 20.99%. In the first month alone, interest is about $87.46. To clear the debt in 9 months you’d need to pay about $555.56 a month.

Now say you can only manage $300 a month. After 9 months at 0%, you’d still owe $2,300. If that rolls to 13.99%, interest is about $26.81 a month. At 22.99%, it’s about $44.06 a month. The transfer still saved money, but the job isn’t done.

Run your own numbers with the balance transfer calculator, or use the debt payoff calculator to set a monthly target.

Current balance transfer offers

These are cards in our data that list a balance transfer promotion. Offers have deadlines and conditions, so confirm the terms on the issuer’s page before you apply.

Low-rate cards such as the CIBC and Scotiabank Value cards keep a lower rate after the promo ends. Rewards cards with transfer offers usually jump higher. See all low interest credit cards if you expect to carry a balance past the promo.

Risks to weigh first

• Missed payments. FCAC warns that missing a minimum payment or paying late can raise your rate, cost you the promo rate and hurt your credit score.
• Running the old card back up. If you keep spending on the card you just cleared, FCAC notes that consolidating debt can leave you owing more than before.
• A new application. Applying for credit adds an inquiry to your credit report, and several applications close together can lower your credit score.
• Eligibility rules. Some offers exclude current or recent cardholders. Scotiabank’s, for example, isn’t available if you’ve held a Scotiabank personal credit card in the past 2 years.

If you owe on several cards and loans, a balance transfer is one form of debt consolidation. A line of credit or a consolidation loan can work better when the debt will take longer than a promo period to pay off.