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Making the most of your credit card

Are you making the most of your credit card?Well, Christmas is over.  Hopefully you had the chance to visit with family friends and enjoy the season.  As the gift bills start rolling in, it’s a good time to evaluate your relationship with your bank/credit card company and make sure you’re getting the most value that you can.

It goes without saying, but I’ll say it anyway that you should only be using a credit card if you have good controls on your spending.  If you’re shocked when you get the bill, you should be using cash or a debit card.  Racking up consumer debt can happen in the blink of an eye and it can take years to get rid of.  If you are carrying a balance on your card(s), then I would encourage you to check out my plan for getting rid of debt.  You can find the first in that series here.

If you generally pay off your credit card in full each month, read on.

Find the best reward deal available

As you’ve probably already discovered, there are so many reward options out there that your head can spin trying to sort them out.  Cash back on purchases, points, travel, the list goes on.  To make matters worse (or better, depending on how you look at it), new cards are continually being added to try to entice you to sign up.  When you pay your balance off each month, the bank still makes money because they get a percentage (usually between 2-5%) of the sale from the merchant.

Credit cards are big money makers for banks, and yet they don’t generally reward customer loyalty.  Most banks offer incentives to switch to their card.  I suppose they know that it’s a hassle for a consumer to change credit cards, so once they’ve got you in, you’ll stay.  I try to take some time to compare the various deals that are out there every few years to make sure I’m getting a reasonable purchase reward.  I’m sharing my research with you – I hope you find it helpful.

In order to compare various cards, it’s helpful to calculate the reward percentage.  When I use this term, I mean the percentage of your purchases that you get back in some form of reward.  For cash-back cards, it’s fairly straight forward.  The bank will tell you that you get X% back on your purchases.  For points, it’s a 2 step process.  First, you need to figure out how many points you get for each dollar spent and then convert those points back to a dollar value.  If a card offers 2 points per dollar spent and it takes 2500 points to get $25 worth of free stuff, the reward percentage would be 2% $25 / [2500 / 2].  If you’re confused, take heart.  I’m convinced they make it hard to calculate on purpose.

Good reward percentages

A decent reward percentage seems to be around 1%, with a higher percentage offered on certain types of purchases.  Some cards offer bonus percentages on grocery purchases, gas purchases, or travel purchases.  Each one has their perk so you need to look carefully and figure out where you spend the most money.

If you’re getting less than 1% back with no other benefits, then your card isn’t offering you a decent deal and you should probably shop around.

If you’re getting significantly more than 1% back, it’s probably because you’re paying an annual fee.  Some banks will offer two options – one with a higher reward % and an annual fee and a second with a lower reward % and no annual fee.  The one that’s right for you depends on how much you usually spend on your card.

Cards offering decent rewards

Note that this list does not include every possibility out there.  I simply looked at the bigger banks and cards that I’ve seen advertised and compared them.  If a card or bank isn’t included, I either didn’t think to check out their site or what they were offering wasn’t as good as what I found elsewhere.  I excluded Amex from the analysis because only selected places will accept it.  If you find a card that offers a better deal, please note it in the comments so that other people can check it out.  Also note that YOU need to read the fine print on every offer to make sure it’s right for you.

MBNA Smart Cash card – cash back (via cheque) of 1% on most purchases, and 2% on eligible gas and grocery purchases (5% for the first 6 months).

RBC Cash Back Mastercard – 2% back on grocery store purchases, 1% on everything else

Canadian Tire Cash Advantage Mastercard – 1.5% cash back on eligible purchases, up to 3% cash back at Canadian Tire and Mark’s Work Wearhouse

Walmart Mastercard – 1.25% back in Walmart rewards (basically equivalent to gift cards) for amounts spent at Walmart, 1% of purchases back in Walmart rewards for purchases elsewhere

PC Mastercard – 10 points for every dollar spent.  Using their points to dollars calculation, the reward percentage is about 1% on this card.  Points redeemed for free groceries at specific stores.

PC World Mastercard – 20 points for every dollar spent at stores where President’s Choice products are sold.  10 points per dollar everywhere else.  This card is better than the PC Mastercard and still has no fee, so if you meet the minimum personal/household income required, I’m not sure why you’d ever choose the regular PC Mastercard.

Target RBC Mastercard – 5% discount on Target purchases, 0.5% back in Target Giftcard rewards on purchases elsewhere

RBC Visa Infinite Avion – Travel rewards at a rate just over 2% (with travel purchases earning at a higher rate), but annual fee of $120 plus $50 for additional cards

Optimize your free credit period

Once you’ve picked a card, figure out which day your statement cuts off.  For example, my credit card statement typically runs from the 16th or 17th of the month until the 15th or 16th of the following month.  My payment is usually due around the 6th.  So, for purchases between January 16th and February 15th, I’ll have until about March 6th to pay them off.  If I were considering a major purchase on February 13th, I’d try to wait until the 16th to make it because then I’d have until April 6th to pay it off instead of March 6th.  A whole extra month of free credit because I waited 3 days.  Some purchases can’t wait, but for those that can, wait until your statement cuts off so you can get an extra month before the payment is due.

Never EVER carry a balance or be late with your payment

We established at the beginning that these tips were for people who pay their balance off in full.  But what if you have some kind of emergency and your bill ends up being higher than you anticipated?  Hopefully you have an emergency fund set up.  If necessary, borrow from that and pay it back as soon as you can.  If you don’t have an emergency fund, a line of credit would be the next choice.  Use funds from there to pay off the credit card.  As a last resort, I would use a cash advance or credit card cheque from one card to pay off another.  That may sound crazy, but if you don’t pay off your balance in full, the credit card company will charge you interest on your purchases from the date you made the purchase, not the day your payment is due.  Bye bye free credit period!  At least if you’re using a cash advance, you’ll only be charged from the date you take the funds out rather than retroactively to the date of original purchase.  If you’re using an emergency fund or line of credit, the interest rate on those is going to be lower than a credit card, which is another bonus.

Using a cash advance from one card to pay another will only work once or twice.  If you owe on both cards, there is no point.  The interest rate on cash advances is usually higher than regular store purchases.  The idea is to buy yourself a few weeks until you can get it paid off again, not for long-term financing.

Have I missed anything?  What tips do you have for making the most of your credit card?

December 12, 2013

4 responses on "Making the most of your credit card"

  1. I’ve been debating what to do about our credit card. We’re just beginning on this journey and next week, I’ll pay the credit card bill off with savings. We’re then beginning with NO debt (except mortgage), and only a £1K savings (emergency fund) … but no other savings – we’ve eaten into them over the past 5 years simply because our outgoings have exceeded our income – by £100 here and £100 there, but it’s mounted up.

    Sooooo, I’m trying to decide whether to keep my credit card and TRUST myself to *always* keep on top of the payments (we get Tesco points which really add up and are useful in lots of ways). Or do I cut the card up…. *sigh* – to keep or not to keep, this is the question!

  2. You haven’t mentioned the Scotia Visa Infinite Momentum which we think is the best one on the market.

    • Profile photo of Leanne Seel, CPA, CA

      Thanks for the mention of that one! I just googled it. 4% back on gas & groceries is good, but the annual fee of $99 per year is high (even though they will waive it for the first year). If you spend enough on the card to make the incremental cash back more than offset the annual fee, this one could be worth it for sure! I wonder how long this card has been around. I’ve noticed that the banks tend to lure people in and then change the deal. For example, the MBNA Smartcash card used to be 3% on gas and groceries and now they have quietly lowered it to 2%.

  3. Too bad I’m not using credit cards anymore.
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