What is a Balance Transfer and How it Works – 7 Things You Need to Know

Jordann Brown
by Jordann Brown March 20, 2019 / No Comments

If you’ve been carrying a credit card balance and you’re looking to reduce the amount of interest you’re paying and clear off your debt faster, balance transfer credit cards might be a good choice for you.

1. What is a balance transfer?

A balance transfer is a process of transferring your high-interest debt (usually from a credit card) to another card that offers a lower interest rate. Transferring your balance from a high to low interest credit tool will help you pay off your debt faster, because you’re paying less money towards interest, and more towards the principal of your debt.

2. How do balance transfers work?

To take advantage of the balance transfer strategy, you must transfer your high-interest credit card debt to a balance transfer credit card. Balance transfer cards offer ultra-low promotional interest rate (usually between 0% – 3%) for a set period, for example, six months.

When you transfer your high-interest debt to this credit card, you’ll pay the low promotional interest rate for the period. This period is an excellent opportunity to make a real dent in your debt because more of your payments will be going towards the principal instead of the interest. A 0% balance transfer credit card gives you the opportunity to pay down your debt faster, versus a high-interest credit card charging 19.99%.

3. The role of balance transfer offers

It’s important to keep in mind that balance transfer interest rates aren’t permanent interest rates. The low interest rate is usually only offered for a set period. For example, the MBNA True Line Mastercard, currently the best balance transfer credit card in Canada according to our latest rankings, offers a 0% balance transfer option for ten months. The ten months is known as the promotional period. After the promotional period ends, the promotional interest rate of 0% expires.

After the promotional period, any remaining balance will be subject to the credit card’s regular interest rate, in this case, 12.99%. The promotional nature of the interest rate means its important to keep an eye on when your credit card balance will be subject to the higher credit card interest fees and to try to pay it off before the promotional period ends.

True Line® Mastercard®


  • No annual fee
  • Cardholders could get a 0% promotional annual rate on balance transfers (plus a 3% fee or a minimum of $7.50) for the first ten months. 12.99% rate applies thereafter
  • 12.99% purchase interest rate
  • Around the clock protection against fraudulent charges
  • Note: Balance transfer offer and fixed interest rate varies for residents of Quebec

4. Transferring a balance is not the same as paying off a balance

Simply transferring a balance onto a balance transfer credit card will not get rid of your balance. Instead, you’re moving your debt from a high-interest credit card to a low interest credit card. That means, while it is easier to pay off your debt because the interest rate is significantly lower, it still needs to be paid off.

You should make a concerted effort to take advantage of the low interest promotional period to make progress in paying off your transferred balance before the interest rate rises.

5. New purchases on a balance transfer card will be subject to a higher rate

While balance transfer credit cards are a great way to reduce the interest you pay on past purchases, this is not the case with new purchases. When you charge new purchases to your balance transfer credit card, they won’t be subject to the special promotional interest rate; they’ll be subject to the credit card’s regular interest rate.

For example, using the MBNA True Line Mastercard, if you make a new purchase on that credit card, that purchase will be subject to the regular interest rate of 12.99%, not the promotional rate of 0%. For this reason, it’s a good idea to avoid charging new purchases to your credit card while you are paying off your transferred balance.

6. Is a balance transfer worth it?

If you have a credit card balance that you are struggling to pay off, a balance transfer can be an excellent way to temporarily reduce your interest rate and pay off your debt quicker. You could easily save hundreds of dollars in interest charges by taking advantage of a balance transfer.

Balance transfers are always worth it if you are transferring a balance that you are confident you can pay off during the promotional period, and if you are sure that you won’t charge new purchases to the credit card during the promotional period. If your transferred balance is larger than you can pay off during the promotional period, low interest credit cards, which are credit cards that offer a low interest rate permanently (with no promotional period) may be a better choice.

7. What to watch out for when using a balance transfer credit card

Balance transfers are a good option to pay down your debt faster, but it’s important to read the fine print and be aware of the limitations of these credit cards. Here are several considerations to keep in mind:

  • Promotional rates don’t last forever: Balance transfer promotional interest rates are usually available for a set period of between 6 and 12 months. After the promotional period ends, the remaining balance will be subject to the regular interest rate, which may be higher than your current credit card.
  • Additional fees: Most balance transfer credit cards will charge a balance transfer fee equal to a percentage of the transferred balance. Sometimes that fee can be as high as 3%, so it’s important to consider this fee along with the promotional interest rate when deciding whether a balance transfer is worth it.
  • No rewards: Most credit cards, even those that offer rewards on everyday purchases, will not offer rewards for transferred balances. Since your goal when transferring a balance is to achieve a lower interest rate, not earn rewards, this isn’t a deal breaker.
  • Credit scores: Some balance transfer credit cards require very high credit scores, which may exclude your application.

    If you are carrying a balance on your credit card that you’ve been meaning to pay off, transferring your balance could be an excellent way to jump-start your debt repayment and save you thousands in interest charges. Just keep in mind that a balance transfer credit card’s low interest rate is only available for a promotional period and that some credit cards charge additional fees to transfer a balance.

If you are carrying a balance on your credit card that you’ve been meaning to pay off, transferring your balance could be an excellent way to jump-start your debt repayment and save you thousands in interest charges. Just keep in mind that a balance transfer credit card’s low interest rate is only available for a promotional period and that some credit cards charge additional fees to transfer a balance.

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