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Credit Card Balance Transfer

Credit Card Balance Transfer: Consolidating Debt in Canada

Managing credit card debt can be tough, especially with multiple cards that are all charging high interest rates. One debt relief option you may want to consider is a Credit Card Balance Transfer. This method lets you pay off a credit card with another credit card with a lower interest rate, helping you pay off your debt faster and more efficiently. This guide will explain the benefits of Credit Card Balance Transfers, how to find the best offers, and tips for managing your credit card debt.

What Is a Credit Card Balance Transfer?

A Credit Card Balance Transfer involves moving the outstanding balance from one or more high-interest credit cards to a new card with a lower interest rate.

Transferring your balance to a card with a lower interest rate can result in significant savings. Credit card companies often offer promotional rates for balance transfers, with introductory rates as low as 0% for six months or more. It’s important to read the terms and conditions carefully to understand what the rate will be after the promotional period ends.

Lowering your interest rate can help decrease your balance. If you maintain the same payment amount you were making on the higher-rate card, more of your payment will go towards reducing the principal balance, helping you pay off your debt faster.

Benefits of Credit Card Balance Transfers

Here are some of the key benefits of Credit Card Balance Transfers:

  • Lower Interest Rates: The main benefit you get when you pay off a credit card with another credit card is the reduced interest rate. Many cards offer an introductory 0% APR for 6 to 18 months, saving you money if you pay off the balance during this period.
  • Simplified Payments: Combining multiple credit card balances into one simplifies your monthly payments. Instead of tracking several due dates and minimum payments, you only have one payment to manage.
  • Pay Off Debt Faster: With lower or no interest, more of your payment reduces the principal balance, helping you get out of debt quicker.
  • Improve Credit Score: Managing and paying off your debt can improve your credit score over time, opening up better financial opportunities like lower interest rates on loans and mortgages.

Potential Pitfalls to Avoid

While a Credit Card Balance Transfer offers several benefits, it’s important to be aware of potential pitfalls:

  • Missing Payments: Failing to make timely payments can result in losing the promotional interest rate and incurring late fees. Set up reminders or automatic payments to avoid this.
  • High Post-Promotional Rates: Be aware of the interest rate that will apply after the promotional period ends. If you have not paid off the balance by then, the remaining debt may be subject to a high-interest rate.
  • Balance Transfer Limits: Some credit cards limit the amount you can transfer. Ensure the new card’s limit is high enough to cover your existing debt.
  • Accumulating More Debt: Balance transfers provide temporary relief but aren’t a solution if you continue to accrue new debt. Focus on changing your spending habits and living within your means.
  • Overlooking Fees: Balance transfer fees can add up and offset some of the benefits of a lower interest rate. Calculate the total cost of the transfer, including fees, to ensure it is a financially sound decision.

How to Find the Best Balance Transfer Cards

When looking for the top balance transfer cards, consider the following factors:

  • Compare Interest Rates and Terms: Look for cards with the lowest interest rates and longest promotional periods. Read the terms and conditions carefully to understand what the rate will be after the promotional period.
  • Consider Balance Transfer Fees: Many cards charge a fee, typically 3% to 5% of the transferred amount. Include this fee in your calculations to ensure the transfer still benefits you.
  • Check Your Credit Score: Your credit score affects the offers available to you. Higher scores generally get better deals. Get a copy of your credit report and check it for errors before applying.
  • Research Card Issuers: Different banks and credit card issuers have different terms and offers. Check their reputation and customer service to ensure a smooth transfer process.
  • Use Comparison Tools: Many online tools let you compare balance transfer cards side-by-side. Use these to find the best balance transfer card for your situation.

Tips for Managing Credit Card Debt

To effectively manage credit card debt, consider the following tips:

  • Create a Budget: Make a realistic budget to manage your expenses and ensure you can make consistent payments towards your debt. Track your spending and adjust as needed.
  • Prioritize High-Interest Debt: Focus on paying off high-interest rate loans first, even if it means making minimum payments on lower-interest balances. This saves you more money in the long run.
  • Avoid New Debt: Resist the temptation to use your credit cards for new purchases while paying off your balance transfer. Stick to cash or debit cards to avoid accumulating more debt.
  • Monitor Your Credit Report: Regularly check your credit report for accuracy and track your progress. This can help you stay motivated and identify any potential issues early.
  • Seek Professional Advice: If managing your debt feels overwhelming, consider seeking advice from a Licensed Insolvency Trustee (LIT). They can provide personalized guidance and strategies for debt reduction.

What Happens If You Can’t Pay Your Credit Card Debt

Using one credit card to pay off another credit card might seem like a quick fix, but it may just shift the debt around without resolving the underlying issue.

If you’re struggling to pay off credit card debt, consider exploring debt relief options. This may involve seeking assistance from a Licensed Insolvency Trustee and considering solutions like a Consumer Proposal or Bankruptcy.

At Adamson & Associates Inc., we are renowned as a leading Licensed Insolvency Trustee and Consumer Proposal administrator in Ontario, offering top-tier professional insolvency services to our clients.

Contact us for a free, no-obligation consultation to discuss how we can help you manage your credit card debt.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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