The obsessive pursuit of credit card reward points has opened the door for people to put their rent on plastic, as well as their taxes, utility bills, tuition and more.
A bunch of financial technology firms are providing this service, and so is Royal Bank of Canada through a venture called Get Digs. If you’re a supersavvy, lock-it-down manager of your personal finances, then these apps can give you a modest boost in points-earning power. If you’re not, avoid them. Don’t be the sucker who buries himself in debt in the hope of scoring a free flight.
Get Digs is about a year old and currently available in Ontario and British Columbia. It’s designed to allow renters to pay their landlord by credit card, thereby earning reward points or cash back on this recurring and potentially large expense. If you have an RBC credit card, Get Digs makes sense because there are no fees involved. If you don’t have an RBC card, the costs are significant.
There’s a 1.5-per-cent fee for a non-RBC Visa or Mastercard and a fee of 2.99 per cent for American Express. The average one-bedroom listing across Canada on Rentals.ca was $1,888 last month, which means a minimum Get Digs fee of $28.32 a month and almost $340 a year.
GetDigs is actually a bargain compared with Plastiq and Paysimply, both of which are listed on the Canada Revenue Agency website as a way to pay your taxes. Kudos to both for transparency – they clearly disclose a 2.5-per-cent fee on their websites for paying taxes (Get Digs is upfront as well on fees). Both Paysimply and Plastiq can also be used to utilities, tuition and other recurring or one-time expenses.
Behind ventures such as these is a behavioural insight: People are wide open to new ways of earning more reward points on their credit card, even if they’re financially risky or unsound.
A first step in making sure these services work for you is to establish that your credit card generates points at a rate that leaves you with something after your fees are considered. This is possible.
“There are a decent number of cards (Visa and Mastercard) that have rewards higher than 1.5 per cent,” said Patrick Sojka of Rewards Canada, an online resource for travel rewards programs. “So the rewards would be well worth it when paying via the service.”
But there are plenty of cards that don’t offer rewards with a value exceeding 1.5 to 2.5 per cent of your spending. For example, you might get 2 or 3 per cent cashback for limited purchases and 0.5 or 1 per cent on everything else.
Get Digs co-founder Rachael Carswell said the app is designed to give people an opportunity to earn points that they didn’t have before. “Some people are looking at this option and seeing that it makes sense for them,” she said. “We always encourage our renters to evaluate potential earnings, regardless of the credit card they’re using on the platform.”
Don’t just compare points earned and fees paid. If you fail to fully pay a credit card bill with your taxes or rent on it, you’ll be charged interest at rates as high as 20 per cent or so.
Outside of payday loans, there’s no debt more toxic than credit cards. It’s a certain bet that credit card companies are going to make big bucks off people who drive up their balances with rent or tax bills and can’t pay in full what they owe every month.
Canadians have all the debt they can handle already. They owed almost $1.79 on average and on a seasonally adjusted basis for every $1 of after-tax pay in the final three months of 2018, and the latest update from the credit-monitoring firm Equifax noted an uptick in both delinquent payments and bankruptcies.
You have to be a bit of a shark to make it worthwhile to pay big expenses such as rent, tuition and taxes on your credit card. Be 100-per-cent certain you’ll pay your balance in full, be sure you’re earning more in rewards than you’re paying in fees and have a plan for using your points productively.
Don’t be obsessive about credit card points. Staying out of debt is a better reward for managing your credit card well than flights or a set of steak knives.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, March 28, 2019