What is a credit card balance transfer?

What are the benefits of a balance transfer?

Like with any financial decision, it's important to weigh the pros and cons of a balance transfer before taking the leap.

Here are some of the key benefits of a balance transfer:

• Save money on interest: Take advantage of your new card’s low-interest promotional period to help save on interest costs.
• Credit card debt consolidation: Consolidate multiple balances into one simple monthly payment to make your finances easier to manage.
• Reduce your total debt: Saving money on interest means you could put more funds toward your debt, potentially paying less overall in the long run.
• Enjoy additional benefits: Your new card may also include intro promos and special offers, like cashback for a specific period.

For many, the biggest benefit of a balance transfer is taking advantage of the lower interest rate during the promotional period. Even for a short period, a lower interest rate can lead to big savings.

For example, say you have a $4,000 balance on a card with a 19.99% interest rate, and you make a balance transfer to a card that offers a 0.99% interest rate for the first nine months and a 2% balance transfer fee ($80).

It’s also important to keep in mind potential limitations and drawbacks of a balance transfer, like a limited promotional period for the lower interest rate and balance transfer fees. However, doing your homework and choosing the right balance transfer option for you can result in significant savings.

What to look for when transferring your balance to a new credit card

So, you’ve decided that a balance transfer is the right move for you. The next step is finding the best balance transfer credit cards that fit your needs. You can choose to transfer your balance to a credit card with your current financial institution or apply for a card at a new bank. Either way, there are some important factors to consider when selecting a bank and a credit card for a balance transfer.

Promotions: Many banks offer special promotions for new balance transfer customers, like a low introductory interest rate, bonus credit card points, and cash back offers. A low interest rate is a crucial factor when considering a balance transfer.

Promotional period: This is how long the introductory offer lasts. For instance, your introductory interest rate might be in effect for the first nine months and then revert to the card’s standard interest rate. A long promotional period gives you more time to pay off your debt.

Maximum balance transfer: The maximum amount of funds that can be transferred during a balance transfer to a new credit card. This may vary between banks and card types. For example, BMO customers can transfer up to $20,000 daily.

Credit card limit: The total balance you can put on a new card. Look for a card with a limit that can accommodate your entire balance in order to maximize the benefits of the transfer.

Available offers: Sometimes, special promotions and interest rates for balance transfers are only available for new customers and non-existing bank customers. Make sure to check with your current bank to see if you are eligible for any balance transfer offers.

Standard interest rate: This is the new card’s regular, non-promotional interest rate. It will apply to all balances once the promotional period is over. It will also apply to any new purchases made with the credit card outside of the initial balance transfer.

Balance transfer fee: Most banks charge a fee to complete a balance transfer, often between 1% and 5% of your total balance. It’s important to compare the fee amount with the money saved through the promotional interest rate to determine if the balance transfer makes sense for you. You can use BMO’s Balance Transfer Calculator to estimate your potential savings.

How do balance transfer payments work?

Once your balance transfer goes through, you’ll start making credit card payments as usual. But there are some nuances to the way balance transfer payments work.

First, you’ll want to figure out your minimum payment. Your credit card statement will typically specify a minimum payment, which is the smallest amount you must make by the due date to keep your account in good standing with your bank.

If you make a payment that exceeds the minimum payment, the additional amount will be automatically allocated proportionately to each balance type.

Here’s how that works: Let’s say you have an existing balance of $200 from a previous balance transfer and you’ve made $800 in new purchases. When you pay more than the minimum, the additional amount is split between two balances based on their proportions. In this case, 80% of the balance would go toward the purchase balance ($800), and 20% would be applied to the balance transfer ($200).

For cardholders who live in Quebec, this would work slightly differently. Any payment amount that exceeds the minimum payment would go toward the balance debt with the highest interest rate, then to other debts in decreasing order of interest rate. In the above example, your payment would go toward the $800 balance since it was not part of the balance transfer and therefore has the higher interest rate. Once that was paid off, your payments would begin to go toward the $200 balance with a lower interest rate.

What happens when the balance transfer promotional period ends?

When it comes to balance transfers, it’s important to understand all the fine print. Typically, your new card will offer a low introductory rate for a set period. Make sure to note exactly how long that promotional period will last before reverting to the card’s standard interest rate.

Along with the interest rate, other benefits and special offers may change after the end of the promotional period. For instance, your cashback rate might be lower after the intro period ends.

One thing that’s important to understand is that different balances on your credit card might be subject to different interest rates. You’ll be able to take advantage of the promotional interest rate only for that initial balance — any new purchases on that card may be subject to the standard interest rate. This can lead to different types of balances with different interest rates on the same card.

Say you transfer a $500 balance to a new card, with an introductory rate of 0.99% and a regular rate of 3.99% once the promotional period is over. When you make your monthly payments, you’ll be charged 0.99% interest on payments toward that balance.

However, if you make new purchases on that card (like spending $100 on dinner), then that brand new balance would be subject to the card’s standard rate of 3.99% unless you pay the full balance by the payment due date.

How to transfer a credit card balance with BMO

Ready to get started? A balance transfer with BMO is simple and straightforward. The process looks a little different depending on whether you’re already a BMO customer or not.

For those new to BMO (welcome!):

1. Explore the available balance transfer offers and find the card that’s right for you.
2. Apply for the card of your choice.

Once you’re approved, the last step is to request a balance transfer.

For current BMO customers:

1. Sign in to your online/mobile banking account
2. Check for balance transfer options under Manage Card

Apply for your offer online or call BMO 1-800-369-13611 8 0 0 3 6 9 1 3 6 1 for support.

Once your balance transfer is accepted, you can check your credit card account for updates on when your transfer will go through. The balance will appear on your new card after it has been authorized and processed.

It’s also important to check your old card and make sure there are no balances remaining. You should continue paying the balance on your existing card until the transfer is completed to avoid getting hit with late fees and interest charges.