The title of this article may sound counterintuitive: spending money to generate money? Well, the concept of spending money to earn more money is not new—it’s simply the basic idea behind investing. But when it comes to credit cards, we often think of them as money-sucking financial tools, yet a necessary evil we can’t live without. We won’t get into the details of how to manage your credit card balance and ensure it’s paid in full to avoid interest; instead, we will explore how to use credit cards to actually make money.
Credit card rewards come in different varieties, with the most common being travel and cash-back rewards. There are also company-specific cards, like Tim Hortons, Rogers, Aeroplan, Walmart Rewards Mastercard, and many more. The rewards from these cards often come in the form of company-specific points or perks. But let’s focus specifically on credit cards that pay back in cash, based on how much you spend. Some of these cards pay you back as a statement credit (applied against your balance), while others pay you in actual cash monthly.
For example, the Tangerine World Mastercard, which I have personally used since 2015, pays me 2% cashback on three categories of my choice (from a total of nine). I have chosen groceries, gas, and recurring bills. All other categories earn 0.5%.
The great thing about this specific credit card is that it pays out monthly in real cash—not just statement credits. You choose which account you want the money deposited into, and Tangerine does the rest. Set it and forget it. Because of this, I put most of my recurring bills, gas, and groceries on this card, and on average, I get about $25–40 a month in cashback, or around $400 annually. Then every December, once the last cashback payment has been credited, I transfer that money to my brokerage account and use it to buy stocks. While this is my credit card of choice for most of these categories mentioned above, I do have a Visa which I use sparingly for other specific purchases, with the rewards being travel mileage points.
If you want to go even further, that $400 compounds at 6–7% when invested, netting me an extra $25–30 annually, which buys me even more assets—and on and on.
While getting this cashback is great, it’s important to remember that it’s useless if you carry any balance as a result of this spending. Imagine this: you spent $200 on a bill and another $150 on groceries but don’t pay the full balance. Sure, you got $7 cashback on that, but the interest owed will be almost four times that amount. In other words, don’t play this game if you forget the most important rule: always have a zero balance on your credit card. Otherwise, the whole thing becomes futile.