Give Me Back My Five Bucks

Have you ever done a credit card balance transfer?

A few days ago I got one of those promotional letters in the mail from my credit card company. You know what I’m talking about: those low interest balance transfer incentives that seem pretty enticing if you’re in debt.

“Take advantage of your low 1.99% promotional annual interest rate. All balance transfers that you complete between now and April 23, 2013 will get this great rate.”

I always shred these types of letters, but I remember there was a time not too long ago where I actually did do a balance transfer of existing credit card debt onto another credit card.

It was 2006. I was a 24-year-old new graduate with a maxed out credit card. I knew my plan was to aggressively pay down my credit card debt, but I didn’t know how long it would take me. So I decided to do a balance transfer in order to lower my interest rate so that I could get out of debt sooner. At that point, I did most of my banking with TD, and I know that sometimes you can negotiate the interest rate down on TD credit cards, but I just decided to move the money onto a completely separate Visa with a promotional interest rate.

The credit card balance transfer ended up working in my favour because I didn’t take on any new debt, and I was able to stick to my plan and eliminate my high interest credit card debt in less than 5 months. But, I was really nervous about doing it because there are so many reasons to be cautious when it comes to credit cards.

How a balance transfer works

A balance transfer is essentially a marketing tool used by credit card companies to bring in more customers and more accounts. The credit card company will agree to move your existing high interest credit card debt to a new account with an attractive interest rate for a set period of time. This is extremely profitable for credit card companies because often times consumers can’t pay off their debt before the balance transfer promotional interest rate expires.

Once you have transferred your high interest debt onto your new credit card, you will have a certain period of time to pay off all of your debt before the promotional period expires and your interest rate dramatically increases.

Understand the costs and penalties

You should be aware that there is usually a transaction fee applied to each balance transfer you make. For example, when I opened up my MBNA credit card a few years ago, I noticed that they charged a transaction fee equal to one per cent of the balance transfer dollar amount. There are some cards that charge as much as five per cent! So if I had wanted to transfer $5,000 from another card onto my MBNA credit card, I would have been charged $50 for the transaction.

It is also crucial to make your monthly payments – both during and after the promotional period. Some cards will automatically increase the Annual Percentage Rate (APR) by five per cent if you are late more than once within 12 consecutive billing cycles. Ouch!

So please, read the fine print extremely carefully.

Create a repayment plan

The best way to take advantage of a balance transfer is to pay off your debt before the promotional period ends. Start by deciding what amount of debt you want to transfer, and then divide that amount by the number of months in the promotional period.

For example, I had $6,000 in credit card debt, and my teaser interest rate was going to last for eight months. So, I knew I had to make monthly payments of at least $750. It was an aggressive plan, but I was extremely determined to do it.

Related: How I got into debt … and out of it

I ended up eliminating all of my credit card debt in less than 5 months, and it was at that point I made a vow to never, ever carry a credit card balance again.

Stop relying on credit

In order for a balance transfer to work you have to stop relying on credit, because it’s obvious how this plan can go horribly wrong: if you can’t refrain from using your credit cards, you will end up with more debt once the promotional rate expires. And then you’re in trouble.

I think it’s important to note that you should only use a balance transfer promotion if you can control your spending on both the new, and the old card. The best thing to do is cut up both credit cards so you aren’t tempted to rack up the balance as you start to pay down your debt and free up credit.

Have you ever done a credit card balance transfer before?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


  1. I lived off of balance transfers for 4 years. As I was paying down my debt, I played the transfer game and it easily saved me thousands in interest. Only do it if you can pay it off, otherwise it doesn’t work.

    • Krystal Yee says:

      Agreed. It only works if 1) you can pay off your debt before the promotional interest rate expires, and 2) you stop using your credit cards!

      • Monsieur Rioux says:

        “It only works if 1) you can pay off your debt before the promotional interest rate expires”

        I know this is old but come on…

        Even if you don’t clear the debt before the promotional rate expires you will have saved typically 90% of the interest you’d have otherwise paid for the duration of the lower rate if you hadn’t transferred.

        When I have an unexpected expense, say $500, I use a different card and then transfer that new spend to an account with a promotional rate of a tenth of the usual rate. The one time fee is $5. Because there’s already a debt that’s being cleared, the interest on that $500 done this way is a tenth of the amount if I’d not done it this way. If the promotion period is 6 months (it’s sometimes more) it’s like $1 a month instead of $10. So instead of $60, it’s cost $6 plus the $5 fee. That’s $11 instead of $60 so there’s an additional $49 a month to clear the other debt.

        • Monsieur Rioux says:

          It worked better when regular payments went to clearing higher interest or older transactions, whereas the payments are attributed pro-rata now, but the principle still works.

  2. Dayle says:

    I’ve used them as well, in the manner you wrote about. I’ve used them to my advantage to save on interest. I currently have my very last one I will ever do, it was a good one, 0% for 10 months … I’ve saved up the money and have it sitting in the bank earning a (tiny) bit of interest until the promo period ends, then I will pay it off.

  3. Wendy says:

    I think credit card transfers can be great. I’ve been using them to pay down my debt. It is also important to make sure there is no balance already on the card you choose to transfer to. You want to avoid paying the regular credit card interest rates. I also noticed my MBNA card only offered me promotion rates when I was carrying a balance, once I paid my off my card those promotional offers stopped.

  4. NDChic says:

    I’ve never done a credit card transfer but I would if I was in a position where I could save money by doing so. My debt has been other than credit cards and I’m too chicken to pay off my student loan by using a 0% credit card offer. I do have a card with a promotional offer if 0%. If I wasn’t able to pay off that card within the given 18 months, I would definitely transfer the balance so I didn’t get hit with the back interest.

  5. Frugal Guy with Balance says:

    I have also done credit card transfers on numerous occasions with different credit cards. MNBA, Royal & Scotia.

    I transfer the funds to the card and do not use the card but start paying the balance down I usually use the funds from the card to offset a margin account.
    I have gotten 0% from some cards with no transfer fee. Have negotiated the Transfer fee down with MNBA ie 0% with a 1% transfer fee.

    Not recommended for those that have trouble paying off credit card balances!

  6. Meghan says:

    I used them before I got serious about paying off debt, and I used them during the process too. What would get me was the 0% for 6 months promotions. I’m happy to report that I no longer have $20k in credit card debt.

  7. e36fanatic says:

    I got married in 2010 and bought a house and had a baby. From the wedding rings and reception, plus no maternity leave, I ended up 20 k in debt. Since then I have worked a second job and bounced 10 k to mbna, 10 k to TD, then repaid them six months later via my line of credit maxed at 10 k, then used RBC to pay mbna, and lived like this until today 2013 where I am still 20 k in the hole. It is a nightmare, impossible to save as minimum payments take it all up and I am always worrying if RBC will start offering balance transfers again, or if TD will stop doing their balance transfers, and thinking about cutting up other credit cards so I can remortgage my house, lose my down payment, change my 35-year mortgage to the new rules and start paying mortgage insurance. Everytime I apply to increase my limit, due to my debt-to-service ratio, I am denied.

    Next time, back yard wedding, and no diamonds at 6 k per ring.

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