It sounds counterintuitive, but you can save money using credit cards. Thousands of us do it every day, collecting travel miles, loyalty points or cash-back rewards.
Getting the most out the plastic in your wallet essentially falls into two categories: picking the right card and then maximizing those rewards.
But choosing the right card is not as easy as it sounds. Just ask rewards guru Patrick Sojka, who spent a week going through the 35 Canadian travel-rewards cards to come up with a Top 10 list for his website, rewardscanada.ca.
"I probably get a dozen e-mails a week from people saying, 'Should I go with this card or that card?' " said Mr. Sojka, a Calgary-based marketer. For example, a trucker recently asked him which card was best for him. His answer was CIBC's AeroGold Visa, which offers a 50-per-cent points bonus on gas purchases up to $80,000.
Mr. Sojka carries three rewards cards (Visa, MasterCard and American Express) and estimates that he and his wife together put more than $60,000 annually on plastic.
Picking the right card has become more difficult as card companies spawn spinoffs - each, it seems, with higher annual fees.
Because you have to ultimately spend to save by piling up rewards - for free flights, merchandise or cash-back rewards - Canadians who are likely to get the most from rewards cards (and justify annual fees that can run as high as $400) are those who travel or spend a lot for business or have high incomes and high personal spending.
That doesn't mean people with more modest incomes can't win by using loyalty cards, but to come out ahead they should be looking for no-fee or low-fee cards and be strategic about their spending. "If you have an airline card but don't spend too much it might take two or three years to rack up enough miles for a free trip. But if you look at the TD Visa, Diners Club or CapitalOne they let you redeem 5,000 points for a $50 credit," Mr. Sojka said.
As a country, we are an enthusiastic, savvy and loyal bunch, even if we have to be paid for our loyalty.
"There are more loyalty programs per Canadian household than anywhere else in the world," said Marc Pocobelli, director of Customer Loyalty and Rewards with American Express Canada. "Canadians are pretty smart in collecting points," he said.
Most retailers are active, if not happy, participants in the loyalty program game. The Retail Council of Canada argues that such cards squeeze merchants' profit margins and ultimately end up in higher prices for consumers. So consumers not participating in loyalty programs are subsidizing those who are. While you may feel sympathy for retailers, it is also a pretty strong argument in favour of using the cards.
If you use them, how can you get the most out of them?
Spend "strategically," advised Neil Everett, chief marketing officer for Air Miles with program operator LoyaltyOne. That means comparison shopping and opting for items with rewards when prices are comparable, using the cards for everyday purchases (Air Miles' Ontario members spend $400 monthly on groceries, for example) and pick one loyalty program and stick to it. "It's not strategic to use several because your rewards never accumulate into something tangible," Mr. Everett said.
That is basically the strategy used by Mr. Sojka. His most worn piece of plastic is his Diners Club MasterCard, which is a high points earner. He also picked up a no-fee Blue Sky Amex "mainly for shopping at Costco." Mr. Sojka put the first $5,000 on his new car on plastic (the maximum the dealer would allow) and uses credit cards to pay as many household bills as possible.
His final piece of advice? Pay your card balance off every month. If cardholders have an unpaid balance "they aren't saving any money because the interest they are paying is way higher than the reward they are getting from the card."
