What is a balance transfer (and how does it work)

Sandra Macgregor

August 13, 2021

*This post is sponsored by CIBC. The views and opinions expressed in this blog, however, are my own. CIBC is not responsible for maintaining or monitoring the accuracy of the information on this website.

There’s no doubt that credit cards can be a great financial tool and help you build your credit, earn rewards, and access valuable perks. But there’s no escaping the fact that, when you don’t pay off your balance in full, you’re effectively borrowing money from your credit card. And, as we all know, when you borrow money, interest enters the equation.

It’s very easy for interest to balloon as it accrues and starts to compound. Next thing you know you owe a massive credit card debt that just won’t stop growing.

Luckily, there is a potent tool called a balance transfer that can help stop credit card debt from getting out of control. A balance transfer is a smart way to cut down (and sometimes even eliminate) interest for a limited time and therefore speed up your journey to financial freedom. But, as with any tool, you need to know how to use it properly and balance transfers can be tricky.

Here’s everything you need to know about balance transfers.

What’s a balance transfer?

Essentially a balance transfer is exactly what it sounds like. You transfer your balance (aka debt) from one creditor (usually a credit card) to another that offers a lower interest rate. The idea being, that when you move a high interest debt to a lower interest alternative your debt stops growing as quickly. Your debt, therefore, becomes more manageable and easier to pay off.

What’s a balance transfer credit card?

Balance transfers cards are unique in that they offer ultra-low interest rates in the single digits. Sometimes there are even credit cards that feature even lower rates, such as the CIBC Select Visa*, which is presently offering a balance transfer rate of 0% for ten months‡.

Balance transfer deals are available only for a limited time after which the balance transfer offer will end and interest will increase back to the card’s standard level. Normally you will also have to pay a small fee (typically a set percentage of the balance you transfer) to transfer a balance from another credit card. Furthermore, balance transfer promos are usually only available to new cardholders.

A great example of a balance transfer credit card is the CIBC Select Visa*. What makes this card stand out is that it currently has an incredible balance transfer promotional rate of 0%‡. Better yet, there’s only a 1% transfer fee‡ (fees can be as much as 3%) and the card’s balance transfer promotion lasts for a whole ten months as opposed to the 6-9 months offered by many other cards.

featured

4.5 Ratehub rated

Balance transfer offer

Pay $390.00/mo: during the promo to pay off $3,900 transferred balance
1% Balance transfer fee: A fee of $39 will be added to your balance
Annual fee: see Details

Perks

Transfer your credit card balance – Get 0% interest for up to 10 months with a 1% transfer fee† and a first year annual fee rebate†
Check full offer details below†
Transfer your credit card balance and get 0% interest for up to 10 months with a 1% transfer fee†
Transfer up to 50% of your assigned credit limit†
If you choose to carry a balance and you make your minimum payments on time, a balance transfer could save you money on interest
Take advantage of this 0% introductory interest rate on balance transfers for your first 10 months.
You’ll only have to pay a 1% fee† when you transfer your balance from another card to the CIBC Select Visa Card
This balance transfer offer is only available at the time of your online application.† Simply tick the checkbox to select the balance transfer option when you’re filling out your application.
Once you take advantage of this offer, you will have a promotional rate balance on your account. As a result, you will lose your interest-free grace period on new purchases unless you pay your amount due, including any promotional rate balances, in full each month. While you will enjoy the promotional rate on the balances you transfer by using this offer, new purchases will be subject to the purchase interest rate.
Save on gas with CIBC and Journie Rewards
Link and use your CIBC Select Visa Card with Journie Rewards to save up to 10 cents per litre† at participating Pioneer, Fas Gas, Ultramar and Chevron gas stations.†
Purchase Interest Rate – 13.99%
Ongoing Balance Transfer APR – 13.99%
Cash advance Interest – 13.99%
†Terms and Conditions Apply

Ratehub’s take

The CIBC Select Visa tops our list for best balance transfer cards, offering a below-average interest rate of 13.99% across all transactions. With a low annual fee, a strong welcome bonus, and additional benefits like extended warranty and purchase protection, it is a strong choice for efficiently managing credit card debt.

Pros

Low APR across the board: Below-average APR of 13.99% across the board on purchases, balance transfers, and cash advances
Affordable annual fee and readily accessible: Low $29 annual fee (which is rebated for the first year) and has a minimum household income requirement of just $15,000 making it accessible to most Canadians
Free secondary cards: Get up to three free secondary cards, enhancing flexibility for shared finances
Included travel coverage: One of the few low interest cards to offer additional travel coverage in the form of up to $100,000 in common carrier accident insurance
Additional benefits: Access additional benefits including extended warranty, purchase protection, and access to CIBC’s 24/7 customer service team

Cons

Limited perks: As a low interest credit card, the CIBC Select Visa doesn’t offer much in the form of perks
Online exclusive offer: The balance transfer offer is exclusively available to new cardholders applying online
Transfer limit restrictions: You can only transfer 50% of your assigned credit limit (e.g. if you’re approved for the CIBC Select Visa with a $2,000 credit limit, you can only transfer up to $1,000 from another credit card)

Eligibility requirements

Minimum credit score: 660

Minimum income: $15,000/yr

Interest rates

Purchase interest: 13.99%

Cash advance: 13.99%

Balance transfer: 0.00% for the first 10 months. 13.99% after promo.

Annual fee

$29

What you need to know about balance transfers

Past not present

Balance transfer promotions are a powerful tool for addressing past debts you accrued on older credit cards, but it isn’t a tool for saving on interest for new and future debt you might start to accumulate with the card. That’s because the rock-bottom promotional rates only apply to balances you transferred and don’t apply to any new purchases you charge to the card. For example, with the CIBC Select Visa*, the balance you transferred onto the card would accrue no interest for 10 months, but new purchases you charge will accrue interest at the card’s standard rate of 13.99% with an annual fee of $29.¹ Therefore, the best strategy is to avoid using your balance transfer card for new purchases and focus on paying down as much of the debt you transferred as possible. It’s also worth noting that the interest-free grace period will no longer apply to any recent purchases you may make.

Nothing lasts forever

Be warned: after the promotional rate ends, the card’s standard interest rate will kick in. So, if you only managed to pay off half your transferred debt during the promotional period, your remaining transferred balance would start to accrue interest at the card’s standard rate. That’s why it’s vital to pay down as much transferred debt as possible before the promo period expires.

Balance transfer fees

Usually, there’s a fee to transfer a balance. Generally, the fee will be a flat rate that’s a percentage of your transferred balance. So, while you won’t accrue interest there’s still a fee you’ll need to be aware of. This fee may be well worth the price of admission to access a super low interest rate.

Transfer limits

There may be rules that determine how much of your debt you can transfer onto another card. For example, with the CIBC Select Visa*, you can only transfer up to 50% of your credit limit.

Credit card providers

You can only transfer debts on credit cards that are from different banks.

Credit check

You will need to apply for a new credit card to leverage the best offers (like the one offered by the CIBC Select Visa*). Just be aware that applying for a new card could involve a hard credit check, which could temporarily negatively affect your credit score.

How does a balance transfer work?

Step 1: Apply for card

Since balance transfer promos are usually only available to new customers, you will need to apply for a new credit card to get a good balance transfer promo. Be sure to compare a few offers and apply for the one that best suits your needs and has a long promo period and low or no interest rate. Also, keep in mind that the card may have income requirements for applicants so don’t waste time applying for cards you are not eligible for.

Step 2: Initiate balance transfer

Some credit cards, like the CIBC Select Visa* let you initiate a balance transfer immediately online when applying for the card.

Step 3: Wait for the transfer to go through

It could take a few days or a couple of weeks for the transfer to complete so be patient.

Step 4: Prioritize paying down the balance aggressively

Remember, the balance transfer is only available for a limited time so pay off as much as possible. Also, avoid charging new purchases to the card as those will be subject to the card’s standard interest rate.

Tips for balance transfers

Here are some tips to keep in mind when taking advantage of a balance transfer offer:

Have a plan and create a budget to ensure you’re paying off as much of the debt as possible during the promotional period.
Stay on top of bills and due dates. Missing payments could mean losing the balance transfer offer. For example, with the CIBC Select Visa* if you miss paying the minimum balance by the due date two months in a row during the promotional period, you will lose the promotional interest rate.
Don’t use your balance transfer credit card for new purchases because any new purchases you put on the card will accrue interest at the regular interest rate rather than the card’s uber-low promotional rate.

featured

4.5 Ratehub rated

Balance transfer offer

Pay $390.00/mo: during the promo to pay off $3,900 transferred balance
1% Balance transfer fee: A fee of $39 will be added to your balance
Annual fee: see Details

Perks

Transfer your credit card balance – Get 0% interest for up to 10 months with a 1% transfer fee† and a first year annual fee rebate†
Check full offer details below†
Transfer your credit card balance and get 0% interest for up to 10 months with a 1% transfer fee†
Transfer up to 50% of your assigned credit limit†
If you choose to carry a balance and you make your minimum payments on time, a balance transfer could save you money on interest
Take advantage of this 0% introductory interest rate on balance transfers for your first 10 months.
You’ll only have to pay a 1% fee† when you transfer your balance from another card to the CIBC Select Visa Card
This balance transfer offer is only available at the time of your online application.† Simply tick the checkbox to select the balance transfer option when you’re filling out your application.
Once you take advantage of this offer, you will have a promotional rate balance on your account. As a result, you will lose your interest-free grace period on new purchases unless you pay your amount due, including any promotional rate balances, in full each month. While you will enjoy the promotional rate on the balances you transfer by using this offer, new purchases will be subject to the purchase interest rate.
Save on gas with CIBC and Journie Rewards
Link and use your CIBC Select Visa Card with Journie Rewards to save up to 10 cents per litre† at participating Pioneer, Fas Gas, Ultramar and Chevron gas stations.†
Purchase Interest Rate – 13.99%
Ongoing Balance Transfer APR – 13.99%
Cash advance Interest – 13.99%
†Terms and Conditions Apply

Ratehub’s take

Pros

Low APR across the board: Below-average APR of 13.99% across the board on purchases, balance transfers, and cash advances
Affordable annual fee and readily accessible: Low $29 annual fee (which is rebated for the first year) and has a minimum household income requirement of just $15,000 making it accessible to most Canadians
Free secondary cards: Get up to three free secondary cards, enhancing flexibility for shared finances
Included travel coverage: One of the few low interest cards to offer additional travel coverage in the form of up to $100,000 in common carrier accident insurance
Additional benefits: Access additional benefits including extended warranty, purchase protection, and access to CIBC’s 24/7 customer service team

Cons

Limited perks: As a low interest credit card, the CIBC Select Visa doesn’t offer much in the form of perks
Online exclusive offer: The balance transfer offer is exclusively available to new cardholders applying online
Transfer limit restrictions: You can only transfer 50% of your assigned credit limit (e.g. if you’re approved for the CIBC Select Visa with a $2,000 credit limit, you can only transfer up to $1,000 from another credit card)

Eligibility requirements

Minimum credit score: 660

Minimum income: $15,000/yr

Interest rates

Purchase interest: 13.99%

Cash advance: 13.99%

Balance transfer: 0.00% for the first 10 months. 13.99% after promo.

Annual fee

$29

How much can you save with a balance transfer?

Wondering how much you can potentially save with a balance transfer credit card? Well, we did a quick calculation to help illustrate the benefits of a balance transfer card:

Say you currently owe a balance of $3,000 on a rewards credit card that has a 19.99% standard annual interest rate. Every month, you diligently put $300 towards your balance. At that rate of repayment, it would take you 12 months to pay off your balance and you’d end up paying a total of $309 in interest!

Now, take the same example with a credit card that has a balance transfer promotion like the CIBC Select Visa*. Let’s assume you take that $3,000 balance from your old credit card and move it onto a new card with a balance transfer promotion of 0% for 10 months, a fee of 1% of the transferred balance (i.e. $30), and a rebated annual fee for the first year. If you diligently paid off the balance in the allotted 10 months you would end up paying no interest at all on the transferred debt and all it would have cost you was $30. That’s an incredible savings of $279.

Footnotes

†

Offer available only at the time of application. You can qualify for this offer if you apply and are approved beginning February 1, 2021.

A one-time annual fee rebate for you (the primary cardholder). This offer applies for the first year only. If you qualify, the rebate will be awarded to you and will appear as a credit against the applicable annual fee(s) within two statements. Your new credit card account must be open and in good standing at time the rebate is awarded.

This offer may be withdrawn or changed without prior notice at any time. CIBC may, in its sole discretion, disqualify, limit or revoke this offer if you are believed to be abusing or manipulating it, or engaging in any suspicious or fraudulent activity.

‡

If you apply and are approved for a new CIBC Select Visa Card, you can receive 0% interest for up to 10 statement periods from the date of application on any balances transferred if: your account is in good standing at the time the balance transfer is processed and the balance transfer amount is at least $1. Otherwise, the regular annual interest rate for cash advances will apply to the balance transfer amount. If the balance transfer amounts exceed your approved credit limit determined by CIBC at the point of credit application, it will not be processed. Once you take advantage of this offer, you will have a promotional rate balance on your account. As a result, you will lose your interest-free grace period on new purchases unless you pay your entire balance, including any promotional rate balances, in full each month. While you will enjoy the promotional rate on the balances that you add by using this offer, new purchases will be subject to interest.

If you do not pay your Required Payment by the payment due date in any 2 consecutive months during the promotional period, you will lose the benefit of this promotional interest rate offer and, effective the first day of the next monthly statement period after the second consecutive missed Required Payment, the regular annual interest rate for cash advances will apply to any remaining balance transfer amounts. For residents outside of Quebec: A Required Payment means the sum of interest, fees and any past due amount plus up to $10 based on your amount due. Any annual fee is excluded from this calculation. If your balance is under $10, that lesser amount is your Required Payment. For Quebec residents: A Required Payment means any past due amount plus the greater of your percent of amount due or $10. If your balance is under $10, that lesser amount is your Required Payment.

Balance transfers are processed in Canadian dollars and cannot be converted to other currencies.

The promotional interest rate is charged on balance transfer amounts from the date they are posted to your account until the end of the offer period stated on your Summary of Rates and Fees. Your Summary of Rates and Fees and CIBC Cardholder Agreement will arrive in your welcome package. After the promotional period, any remaining balance transfer amounts will be charged interest at the regular annual interest rate for cash advances, until the amount is repaid in full. During the promotional period, the regular annual interest rate for purchases will apply to purchase transactions and the regular annual interest rate for cash advances will apply to balance transfer(s) that do not qualify for the promotional interest rate. For more information on how interest is calculated, please refer to your CIBC Cardholder Agreement.

A fee of 1% of the balance transfer amount will be charged to your account when the balance transfer amount is posted. If you do not pay off your balance in full by the due date, interest will be charged on the fee at the regular annual interest rate for purchases from the date the fee is posted to your account.

You will not be approved for a balance transfer amount that exceeds your assigned cash limit or is greater than 50% of your assigned credit limit.

If a balance transfer amount plus the balance transfer fee results in you exceeding your available credit or available cash limit, we may not approve the balance transfer, and may charge you a dishonoured balance transfer fee, or we may honour the balance transfer at the regular annual interest rate for cash advances and charge you any applicable overlimit fees. See your Summary of Rates and Fees. No partial balance transfer amount will be applied.

Payments will be applied to your account as set out in the "Application of Payments" section of your CIBC Cardholder Agreement and as set out in these terms and conditions. You cannot choose to apply your payments to your regular annual interest rate balances and leave your promotional interest rate balance transfer balances outstanding. For personal cardholders only: If you make a payment greater than your minimum payment, the excess amount is allocated to your regular annual interest rate balances and your promotional interest rate balance transfer balances in the proportion that each represents the remaining balance.

Interest on the balance transfer amount may be charged on both your CIBC account and the non-CIBC account(s) from which you are transferring a balance until the transferred amount is credited to the non-CIBC account(s). You are responsible for any payments due on the non-CIBC account(s) from which you are transferring a balance. Balance transfer(s) do not result in the cancellation of your non-CIBC account(s). Balance transfers cannot be used to make a payment on any other CIBC credit card or loan product and do not qualify to earn loyalty points, rebates or cash back rewards. You cannot dispute balance transfer transactions.

We may make changes to these terms and conditions at any time with or without prior notice unless advance notice is required by law. CIBC may notify you of such changes by sending a notice in accordance to the terms of your CIBC Cardholder Agreement.

Interest rates may change from time to time . "Cash" means cash advances, balance transfers and CIBC Convenience Cheques.