A credit card balance transfer is a process whereby the balance of a credit card is transferred from one account to another. This transaction is mostly encouraged by credit card companies as it allows them to gain new customers. Naturally, transfers work to the disadvantage of the companies that originally owned the balance by decreasing their customer base.
The Transfer Process
Credit card balance transfers are quite simple to carry out. First, consider the fact that there is a huge competition between financial institutions, making more companies offer to borrowers with substantial debt the transfer of their balance to a new account at a lower interest rate, a grace period, or other benefits. Grace periods are usually generous, extending over a period of 6 months up to a year. Apart from grace period, low introductory rates may also be offered for the same time span.
The transfer is a quick process and may only take a couple of hours. It is important to note that while the balance transfer is carried out, the borrower may still have to pay the lower interest balances before progressing to those with higher rates. Therefore, to take advantage of the transfer, you have to repay the balance in full before the introductory offer or grace period expires.
Balance Transfer Rates
Two types of rates are to be kept in mind when making a balance transfer. First, there is the normal rate that the new credit card company offers. When shopping for a credit card offer, it is best to check which company advertises the lowest interest rates. During the transfer, the normal rate often applies immediately. However, since the normal rate is lower than the old one, it means you will be making lower payments per month.
The other point to consider when you make the transfer is the teaser rate. The latter can be offered at two percent, one percent, or even zero percent interest per month: that’s good for the borrower as the credit card payments can be significantly lower. However, the teaser rate is not permanent. It is usually offered as an introductory rate and is valid between 6 and 15 months. The teaser rate can be withdrawn by the credit card issuer if payments are not carried out in a timely manner. So, make payments current to avoid accruing higher interest. Also, consider the fact that the rate can shoot up to an astonishingly high level when the teaser is withdrawn.
Credit Cards with Low Rate Balance Transfer in Canada
Here are some of the offers on the Canadian credit card market: the Smart Line Platinum MasterCard with 3.75 percent long-term rate on balance transfers; the Platinum Plus MasterCard, going with zero percent introductory annual interest on check cash advances and balance transfers for 15 months, and Capital One Gold MasterCard (11.9 percent long-term rate on cash advances).
Other Things to Consider
When you carry out a balance transfer, make sure you read the fine print as it can be very deceptive. Sometimes, the borrower is required to pay hidden fees like a certain percentage of the balance to be transferred. High annual fees may also apply; so, have a good look at the terms and conditions offered before you make a decision. The success of using a balance transfer as a means to lower your debt depends on how you manage your monthly payments.