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Rewards can be used to pay off larger debts, such as student loans and mortgages

Mastercard Inc. credit cards. Mastercard Inc. credit cards. Photo by REUTERS/Benoit Tessier//File photo

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MONEY MILESTONES: In an ongoing series, the Financial Post examines personal financial questions related to life’s major milestones, from marriage to retirement.

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Credit cards can be a fickle beast. They may seem like the solution to your problems if you can’t afford groceries this month, but forget to pay them, and they suddenly turn into serious debt, especially for millennials who already have several other types of debt.

This generation has been through a lot. But now they’re trying to buy a house, which means a long mortgage, even though they still have student debt — an average of $28,000 for Canadians with a bachelor’s degree, according to Statistics Canada as of 2015. It doesn’t matter to open a line of credit to help pay for starting a new family in many cases.

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That’s why it’s important that young Canadians know exactly what they’re getting into when using a credit card. But there’s no reason to go without, said Julia Miller, spokesperson for Payments, Credit and Banking at Royal Bank of Canada, especially if a credit card has a rewards program that can cover a range of needs, from paying bills to ambitious travel.

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“Customers can pay off their credit card balance with points, pay for in-store purchases, pay their bills, send an e-transfer to a friend, convert points into a wide variety of affiliate loyalty programs, or donate them to a charity of your choice,” she said.

It is these services that help people manage their finances before they find themselves even more in debt. In this sense, credit card rewards programs can be used as a tool to both build credit and meet their day-to-day needs by using the rewards.

For example, PC Optimum, one of Canada’s most popular rewards programs, has become a budgeting tool for many. PC Optimum recently partnered with Esso to allow people to pay for everything from groceries to gas with points, said Barry Columb, president of President’s Choice Financial.

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“We’ve partnered with Esso to bring redemption from our stores to the pumps at a time when gas prices are taking an even bigger chunk out of Canadians’ wallets,” Columb said. “At the end of 2020, we launched the PC Money Account, an account that allows customers to pay with their own money and still collect the points they depend on.”

Every bank is different, just like every card, because every bank offers different rewards and payment methods. That’s why it’s important to do your research before making a decision, especially if you’re using your credit card specifically for the rewards.

Looking for credit cards that allow you to pay for items you use regularly can be a good start, says Premal Brahmbhatt, an assistant branch manager at the Bank of Nova Scotia in Toronto.

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“If you make certain transactions as part of your daily routine, such as taking public transportation, ordering food with SkipTheDishes, going to the movies, you can use credit cards that give you loyalty benefits that can be redeemed at various shopping partners,” says Brahmbhatt. said. “Take advantage of rewards if it naturally complements your lifestyle, but don’t use credit cards to earn more rewards if it means building up more debt.”

More debt is definitely something Canadians don’t need. Therefore, another consideration is to use credit card rewards to pay off larger debts you already have, such as student loans and mortgages. But not every bank offers this, Miller said.

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“Customers can use (RBC Rewards) points to improve their financial well-being, such as using points to pay off loans, mortgages, credit cards or contribute to investments in retirement and education,” Miller said. “RBC, as well as other financial institutions, also offer low-cost credit cards for customers who want to save on interest charges.”

Using credit card rewards can be a useful tool in reducing debt and managing finances, but it’s just that: a tool that any one of many people can use to pay off their debts.

Brahmbhatt noted that a few other ways to reduce debt are to cut down on automated costs, especially subscriptions. People should also regularly review their costs to see where they can save. In addition, they should focus on reducing high-yield debt first, followed by larger debt such as student loans and mortgages.

But if Canadians are serious about reducing debt, Miller said the best line of defense is to meet with a financial adviser.

“Debt creation in general is something that concerns many Canadians,” she said. “Having the right advice and support can help people manage their money effectively, including paying off debt.”

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