A message to the 42 per cent of credit-card holders who do not pay their balance in full every month: Stop using your card and switch to debit.

Credit cards have become the most popular way by far to pay for purchases above $15, a Bank of Canada study shows. Reward points explain this trend. People love them so much they make fundamentally bad financial decisions in order to earn them.

If you don’t pay your credit-card bill in full, interest rates of 20 per cent or so apply to your balance. There is not a single reward program good enough to offset that interest cost and still deliver value.

So switch to debit and earn your reward points that way if you have a credit-card balance. Debit-card loyalty programs aren’t as numerous or varied as their credit-card counterparts, but they still deliver good value for people who are parking their credit cards to contain debt.

A recent edition of my free twice-weekly e-mail newsletter, Carrick on Money, recently looked at the comparative popularity of cash, debit and credit. Lots of readers told me they use credit cards for everything, even purchases under $5, in order to earn points.

Yet, more than four in 10 people are not paying their card balances in full, according to the Canadian Bankers Association. There has to be a sizable group of avid points collectors who don’t pay their balances in full and thus pay 20-per-cent interest.

For them, and for anyone who for whatever reason is averse to credit cards, consider one of a limited number of debit cards with attached loyalty rewards.

I asked newsletter readers which debit-card loyalty programs they liked and three were mentioned. The first is a cross promotion where Royal Bank of Canada clients save 3 cents a litre on gas or diesel fill-ups at Petro-Canada stations.

All you have to do is go online and link your RBC debit or credit card to Petro-Canada’s loyalty program, Petro-Points. If you don’t have a Petro-Points membership, you can start one on the spot. When you fill up at Petro-Canada stations, you’ll notice on your receipt that the pump price has been discounted by 3 cents a litre. You also get 20 per cent more Petro-Points than you would normally earn.

One newsletter reader said he saves an estimated $15 to $20 a month on average using this loyalty program, not including the value of the Petro-Points he’s accumulating.

Another debit-card loyalty program that got mentioned a lot is the Bank of Nova Scotia’s Scene debit card. You get one Scene point for every $5 spent on the card and you get five times the points on purchases at Cineplex theatres. You can redeem Scene points for movie tickets and snacks plus restaurant meals – 1,250 points gets you a free movie. Scene points can also be converted into Scotia Rewards points.

One reader said she gets three or four free movies a year just by using her Scene debit cards on purchases less than $25. For larger transactions, she uses a credit card.

One other debit-card loyalty program is offered by Bank of Montreal. You get one Air Mile for every $30 spent on your BMO debit card. Call it a lite version of the BMO Air Miles Mastercard, where you get one mile for every $20 spent, and the BMO Air Miles Word Elite Mastercard, with one mile for every $10 spent.

The big benefit of using a debit card instead of a credit card is that the cost of your purchase is immediately deducted from your bank account. There’s no monthly bill for purchases that you made weeks ago and may not be able to pay for in full at month’s end.

Another benefit flows to retailers as opposed to cardholders. A $100 item bought on a credit card might cost a retailer 1.5 per cent on average in interchange fees, while the same amount bought with a debit card might cost the retailer an average of 10 cents.

The Bank of Canada study shows that credit cards have been steadily taking market share away from cash and debit cards in recent years. Nearly everyone is chasing credit-card reward points, even those who would be better off giving their cards a rest and switching to debit.

The Globe and Mail, November 28, 2019