I’m a huge fan of my RBC Avion Visa. It’s one of those random things that get me excited. Every year I deposit a significant amount of money into my retirement savings (RRSP) thanks to my credit card. I thought I would share this technique with you. These principles should work with any card that gives points that you can redeem for gift certificates or cash back, though this post focuses on the RBC Avion. With this program you can get gift certificates for RRSPs, RESPs, or put towards loans or mortgages.
I’m in no way endorsing any particular bank or program here. RBC’s Avion visa is the program I’m familiar with and I’ve been using for the past six years. Please feel free to leave a comment describing your experiences with other banks and rewards programs.
Interest kills the entire thing
The very first thing you need to know is that you can NOT carry a balance on your card. Ever. These “premium” cards that give points always have a very high interest rate – 19% and up. Carrying even a tiny balance will eat any potential benefits in no time. Though I never encourage spending more than you can afford, if one month you over extend yourself, paying off your balance with a lower interest credit might be your best option. It’s important to note that if used properly, a credit card is a free loan. Depending on the timing of your purchase(s) you can get up to a 45 day, interest free loan.
Use Your Visa for EVERYTHING
The next key step to this process is to use your Visa card for EVERYTHING. Even if you have cash in your wallet get used to using your Visa exclusively. Save your cash to pay off your next Visa statement! Setup as many of your automatic monthly expenses as possible to automatically deduct from your Visa:
- Cell Phone
- Home Phone
- Satellite / Cable TV
This also has the added benefit of making bills a little easier to pay each month as instead of having to pay them individually. There are several other benefits to this including no debit card fees, better exchange rates than cash when travelling abroad, and you also get all the various benefits of the premium card like insurance and what not. Sadly my power and gas companies refuse to accept Visa so I have to waste time each month to manually transfer money to each one of these accounts. (Come on Epcor and Altagas. Get with the times).
Big ticket items rack up the points quickly. If you’re planning on buying a new TV or other large items– put it on the card. We renovated our new home this year and I managed to get 75% of the expenses on my visa. This significantly increased the points earned for the year. A lot of times car dealerships will let you make a down payment on a new vehicle using your Visa. It is unlikely they will let you buy the entire vehicle using your card, as there are costs to vendors when accepting credit cards.
Let’s consider the new car scenario. Assume for a minute you have negotiated a price of $10K for a new vehicle. You have $10K in cash in the bank to pay for your new vehicle. The dealership will allow you to pay for up to $5000 of your new vehicle using your credit card. Instead of giving the dealership $10K in cash, you make one payment of $5000 with your Visa, and one payment of $5000 with your cash. At the end of the month you use the other $5000 to pay off your credit card. So at this point you’ve spend the same amount of money BUT you gained 5000 points.
Using a credit card this was does take some personal responsibility and care. Spending on credit as opposed to spending cash can result in EASILY over spending. Be mindful of this if you’re new to credit cards. Learn your payment due dates and set calendar reminders for the day before as well as the week before to make sure you pay it on time!
Leverage your business
Companies spend a lot of money. Especially technology companies! Software, hardware, books, meals, travel etc – it all adds up. Ask your bank if you can setup a corporate business card and have the points transfer into your personal card. RBC let me setup a company Avion card and each month the points are transferred. I run my business almost exclusively using this card. With the exception of payroll and the odd strange expense that requires checks – 99% of my company spending happens through my corporate card. This also makes my accounting significantly simpler and saves me money on bookkeeping and accounting come year end.
Profit from your employer
Years ago when I worked for a company where I was the head of IT in addition to being a software developer. My boss was really cool back in the day when it came to expenses for the company. He would let me make purchases (including very significant ones) for the company using my personal card and expense them back to the company. Not only did this help me build up points – but it also helped me build up a great credit rating. When I moved on to start my own business I had a personal credit card with a huge limit (tens of thousands) that I paid off every month. This really helped my personal credit at a critical time in my life.
So if you can spend on behalf of your employer and be reimbursed each month go for it. Free points == free money!
45 day interest free loan
What the heck I’ll share this little tidbit too. Find your credit card cutoff date. This is the date that charges for the current month are stopped and will start to count against the next month. For example, both my cards (personal and corporate) are synchronized. The cutoff is the 10th of each month. So any charges made up to and including the 10th will need to be paid on the 27th of that month. Anything charged on the 11th or later will need to be paid on the 27th of the following month. This is significant. There are not many other ways to get a 45 day interest free loan.
Redeem early. Redeem often!
This is especially important for rewards going into investment accounts or that go towards paying down mortgages. I used to wait until the end of the year to cash out my points and do one large deposit into my investment account. I realized that this was silly. Now I strive for quarterly deposits. This lets me try and capitalize on market downturns – buying low! Also if you’re going for other rewards like mortgage payments – why pay the extra interest with a single deposit? Instead of depositing say 1000$ once a year, do 250$ quarterly. This decreases the principle of your loan and in turn the interest paid.
With the RRSP rewards it costs 3000 points to redeem 25$ worth of credit. There is a minimum purchase requirement of 12000 points which results in a 100$ gift cert. After that the amount increases in 3000 point increments. Redeem 60K points, get 500$ gift certificate.
One last benefit to an RRSP contribution is that in addition to the 25$ going into your account – you SHOULD get a ~5$ tax refund on that amount at the end of the year. This makes the 3000 points actually worth a little bit more. The same can be said about paying down mortgage principle – you should save money in interest.
So by changing the way you spend money you already spend in life you can gain a number of benefits – free 45 day loans, save money on accounting, save time paying bills and finally – free money! I’d love to hear about other creative ways to use your credit card to earn reward points. I’d also love to hear about other banks and credit card programs. Please feel free to contact me by e-mail, Google+ or leave a comment here!