With forty-four percent of Canadians admitting to living paycheque to paycheque, the stress on Canadian families to make ends meet has only gotten worse in the past two years. For some, unexpected expenses have caused an increase in high-interest credit card debt. Compounding interest costs can be financially debilitating and to help relieve that stress, a balance transfer to a lower-interest credit account can give you the breathing room you need to sort out your finances.

What is a balance transfer?

A balance transfer is taking the accrued credit debt you have from one or more credit sources and moving them to another lower-interest account.

High interest debt

If you are carrying a balance on a high interest credit card or pay-day loan and are finding yourself consistently making minimum payments, with no significant reduction in the principal balance, then a balance transfer makes a lot of sense. Combining multiple accounts into one, not only will reduce the interest, but also will give you a lower, combined single payment.

If you use multiple credit cards, balance transfers also enable you consolidate your debts and move them to a single, lower-interest credit card. Paying those high interest rates – (sometimes as high as 30 percent!) – can significantly reduce your ability to get your debt under control. There are several credit cards available that offer a lower interest rate and they will often have promotions that will allow you to transfer your balance at zero cost.

Balance transfer beware

While transferring a balance from one credit source to another is a great tactic to save on interest charges and multiple bill payments, there are some important things to consider before you start applying for lower interest credit.

Credit report collateral damage

Every time you apply for a credit product, the inquiry is attached to your credit report and multiple applications can negatively impact your score. If you’re already struggling to keep your finances in order, applying for yet another credit card to get through a difficult time, could actually make your financial situation worse.

Transfer fees

There are many credit cards that offer a zero-fee transfer but it is more common to be charged a three to five percent balance fee to move your money. The fee may still be worth it, but you’ll have to crunch some numbers to make sure it's the best decision.

Debt management

While it’s great to consolidate debt and reduce the number of payments you have every month, don't use the empty credit accounts as opportunities to spend money. If you don't need that credit card anymore, cut it up. If you don't trust your discipline, then close the account as well, and though may seem counter intuitive, having available credit you don’t use is a great way to improve your credit score!

Balance transfers offer a great opportunity to manage credit card debt and help get your finances under control. Need guidance on whether this is a great solution for you? Give us a call. We’re here to help.