Apr 10, 2026
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A balance transfer offer looks like a lifeline: move your high-interest credit card debt to a new card at 0%, stop the interest clock and pay down the principal. With credit card balances across Canada hitting $124 billion in Q4 2024 — up 9.2% year-over-year — it's no surprise more Canadians are reaching for that option (1).
But Canada's banking ombudsman says something is going wrong. In a February 2025 consumer bulletin, the Ombudsman for Banking Services and Investments (OBSI), an independent not-for-profit that investigates unresolved complaints against banks and investment firms, reported a rise in balance transfer complaints. The most common issues: Confusion about how interest is charged, how payments are applied and what happens when something goes slightly off plan (2).
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If you're one of the many Canadians who carry a credit card balance — with an average balance at just over $4,680 — and you're considering a balance transfer, here's how the fine print can cost you more.
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Why balance transfers don't come with a grace period
Most credit cards offer a grace period — typically 21 days after your statement closes — during which you can pay off new purchases without incurring interest. Balance transfers are different. The promotional rate applies to the transferred amount, but any new purchases made on that card begin accruing interest immediately at the standard rate, often 19.99% or higher. According to OBSI, there is no grace period for those charges while a transferred balance remains on the account.
This surprises a lot of cardholders. The assumption is that the low promotional rate applies to the whole account. It does not. If you use a balance transfer card for groceries, gas or anything else and don't pay those new charges in full, interest on new purchases starts accumulating from the day of the transaction.
For most people, the safest approach is to treat the balance transfer card as a dedicated debt-repayment vehicle — not a card for everyday spending — until the transferred balance is fully paid off.
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How payment allocation rules can wipe out your savings
This is the issue OBSI says generates the most confusion. When a cardholder carries both a transferred balance and new purchase charges on the same card, payments are typically distributed proportionately across all balance categories — or, in some cases, applied to certain categories first. The result: new purchases can accrue interest month after month even as the cardholder believes they're paying the debt off.
An OBSI case study from January 2025 illustrates how a cardholder transferred $10,000 to a 0% promotional card and continued using it for regular purchases. She paid off the full statement balance each month — or thought she had. Because her payments were distributed proportionately across her transferred balance, purchase charges and cash advances, a portion of her new charges remained unpaid each cycle, accruing interest. The bank confirmed no interest had been charged on the transferred amount, but the purchase interest kept compounding over time (3).
The takeaway: Check your cardholder agreement for the exact wording on how payments are allocated. If the agreement allows the bank to apply payments proportionately or to lower-rate balances first, new purchases can become an expensive blind spot.
Miss a payment and lose the rate — permanently
Most balance transfer promotional terms include a clause that revokes the low rate if you miss a payment or exceed your credit limit. This is not a warning buried in small print — it is a standard contractual term. But OBSI says many cardholders don't realize they've triggered the clause until after the promotional rate has already been cancelled and interest at the standard rate has begun accruing on the full transferred balance.
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In a second January 2025 case study, a cardholder transferred $14,000 under a 0% promotional offer. She missed two monthly payments due to confusion over the charges she was seeing on her statement. Her bank revoked the promotional rate on the full transferred balance. When she brought her complaint to OBSI, investigators found the bank had properly disclosed the payment terms. This meant there was no basis to recommend compensation, and the cardholder was stuck with the additional cost.
Setting up automatic minimum payments as well as a calendar reminder for the full balance due on the card is a practical way to avoid an unexpected interest expense on a balance transfer card. Remember, if the promotional rate is lost, the financial advantage of the transfer can disappear quickly.
Read more: The ultra-rich are bailing on volatile stocks right now — these 4 shockproof assets are their new safe havens
The credit score hit you may not have expected
Accepting a balance transfer offer often means opening a new credit card account. That triggers a hard credit inquiry, which can temporarily lower your credit score. The new account also changes your credit utilization ratio — how much of your available credit you're using — as well as your average account age, both of which factor into how lenders assess your creditworthiness.
This isn't typically an issue, unless you plan to apply for a mortgage, car loan or other major credit product in the near term. A lower score at the time of a mortgage or other significant debt application can affect the rate you're offered — or whether you qualify at all.
A fee that may not be a bargain
There is also the annual fee to factor in. Some balance transfer cards carry annual fees of $99 or more. On a transfer fee of 2% to 3% of the balance, plus an annual card fee, the upfront cost can narrow the savings significantly, particularly on smaller balances or shorter promotional windows.
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What can Canadians do to stop the risks of balance transfers?
OBSI's investigation doesn't mean a debt-repayment strategy using a balance transfer card doesn't work. What the report highlighted is the need to understand how these products work — and how you can make them work for you. Here are six steps to help:
- Read the full cardholder agreement before accepting any balance transfer offer — specifically the sections on payment allocation and promotional rate conditions.
- Add up the transfer fee (typically 2% to 3%) plus any annual card fee, and compare that total against the interest you'll actually save over the promotional period.
- Avoid using the balance transfer card for new purchases until the transferred balance is fully paid off — new charges accrue interest at the standard rate from day one.
- Confirm in writing how your payments will be allocated across balance categories — proportionately, or to specific categories first.
- Set up automatic minimum payments to protect the promotional rate, and a separate reminder for your full balance due date.
- If something goes wrong, file a formal complaint with your bank first — then escalate to OBSI for free if the issue isn't resolved.
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In the end
A balance transfer can be a genuinely useful tool for paying down debt faster and at lower cost — but only if the terms work in your favour from the start.
The complaints registered with OBSI show a pattern: A gap between expectation and reality. Specifically, there are three areas to watch: payment allocation, grace period assumptions and the conditions under which the promotional rate disappears. Closing that gap before you transfer is the work that determines whether the offer actually saves you money.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
TransUnion Canada (1); Ombudsman for Banking Services and Investments (2),(3)
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Romana King is the Senior Editor at Money.ca. She writes for various publications, and her book -- House Poor No More: 9 Steps That Grow the Value of Your Home and Net Worth -- continues to be an Amazon bestseller. Since its publication in November 2021, this book has won five awards, including the New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award in 2022.
