Hey you, wanna balance transfer? I’ll give you a good deal!

Earlier this week, I got an invitation from Scotiabank to take advantage of a balance transfer, with an interest rate of 2.25% for 6 months. I have until August 31 to take advantage of this.

Once upon a time I took VISA up on an offer like this. It just about made me crazy. I didn’t read the fine print, and I paid a heavy price for that. Since my existing line-of-credit debt is at 7.25%, I thought I’d take a closer look at Scotiabank’s offer.

Seems reasonably straight forward, until I got to the fine print. Most of it was clear, but there are two bullet points that only confused me. Instead of going in for my third read, I picked up the phone and called Scotiabank.

If I recall correctly, the issue I had with VISA was the inability to direct my payments. My payments toward my debt (at that time, which is ancient history now) went to my existing balance with the highest interest rate. Since I did have a balance then, I thought I’d never get to the point where I could actually touch the most recent balance transfer at the lower rate. I ended up pulling the money off the card and putting it on my line of credit instead. I’m sure some of that debt is still the stuff I’m dealing with today. I digress…

According to the very nice lady at Scotiabank, if I transfer a balance, any payment would go first to interest first, (any interest at a predetermined rate for any existing balances, and interest on my new balance transfers) then any remaining amount would go to the principle on the newly transferred amount. This way, you target your balance transfer first, for up to six months.

The trouble with this is, if a person had existing debt, let’s say in a Scotiabank line of credit, they wouldn’t be touching the principle until their new balance transfer was paid off. This may or may not be an issue for some people. If they’re able to tackle a small amount of debt and retire it in six months at 2.25% and save interest, then it may be a good move.

Here’s how I understand it would work: Ms. Consumer has an existing Scotiabank line of credit. She currently has $20,000 owing. She has a $35,000 credit limit on her line of credit.  Ms. Consumer receives these balance transfer cheques, and transfers $$8,000 from a credit card to her Scotiabank line of credit.

On her payments, she’ll pay the predetermined interest rate on her initial $20,000, she’ll also pay 2.25% interest on her $8,000 transfer. Any amount over the interest will go toward the $8,000 debt. No payment toward the principle of the $20,000 will occur until the $8,000 has been retired. Oh, and this is only for six months.

Guess what they’re hoping? You’ll not take care of the debt in six months and you’ll then start paying them the higher interest rate on your line of credit!

In closing, the nice lady at Scotiabank said “the government wants to change this, soon we’ll have to take the payment toward your existing debt first, then apply any remaining to you new balance transfer.”

To me, these offers are ONLY good when you can take advantage of an obligation that you’re able to deal within the time frame of the limited time offer. If you can’t, you’re just setting yourself up for future heartache.

For me, I’ll just keep negotiating my interest rate on my line of credit with the folks at CIBC. Even though I feel like I can take advantage of this rate and deal with my existing line of credit debt in six months, it adds extra anxiety for me, and frankly, I don’t need it. You see, I do have an existing Scotialine, which is a mortgage product for me. Long story, I won’t bore you with. I’d rather just see that debt as mortgage debt and not muddy the waters.

Bottom line, be cautious of these offers. They can be good, but the bank thinks they’re good for them too, otherwise, they wouldn’t have spent the money on a stamp to put it in your mailbox!  Do you have a balance transfer story to share?

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2 responses to this post.

  1. Years ago, we got a balance transfer offer in the mail from PC bank. We didn’t have a mastercard with them so the offer was to open up a brand new mastercard account and do a balance transfer at the low rate they were offering. Since we had no previous balance to worry about, we did it. We moved several thousand dollars from Visa and another Mastercard to the brand new PC mastercards we opened. We NEVER used the new cards for purchases, and paid them off as quickly as possible. Once fully paid, we tucked the cards away in a safe place at home and forgot about them. About 3 years later, we both got notices in the mail saying we NEEDED to use the PC mastercards for puchase within 60 days or the accounts would be closed. We let the accounts expire and no longer have those credit cards. We won! We got the lowest possible interest rate and didn’t EVER pay the higher rate that was applicable to cash advances and new purchases.

    If anyone is considering doing a balance transfer like we did, I’d highly recommend doing it to a brand new credit card that you aren’t carrying a balance on. This way there is no confusion, and all the payments go directly to pay off the lower interest debt.

    Reply

  2. Posted by DTN on July 15, 2010 at 10:11 am

    I think the key is to not have a balance on the card prior to writing the check for the Low Interest Rate, that way you are truly taking advantage of the rate offer – and don’t use the card to purchase anything while you have the low interest rate.
    You also need to read the fine print, because they often have a ‘fee’ to cash the check… 1% of the amount of the check, or 5$… whichever gives the bank more money :-S Often it is not a large enough fee to cause you an issue, but can be a surprise if you didn’t read the fine print. Also, if the balance isn’t paid in full when the interest rate increases, be prepared to transfer it to a different card with a lower rate, or some other source of low interest credit…

    Reply

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