While chatting with a friend recently, she confessed that she was not interested in credit cards rewards programs because she said it was “complicated” to manage.
So I sat down with her for this exercise to show her that it’s possible to get much more than her little 1% back on her credit card without any fees.
Getting 10 to 20% back, regularly, on purchases we have to make anyway? Yes, it is possible, but it takes some management and diligence because the issuers will not give you your rewards ready-made! It’s like any other job, what you get is equivalent to the effort you put in.
So let’s go step by step to manage credit cards properly.
1. Determine your monthly expenses by category
Take a look at your monthly expenses:
- Housing (rent/mortgage, telecommunications, electricity, insurance, etc.)
- Food (groceries, restaurants, snacks)
- Travel (car loan, gas, insurance, public transportation)
- Health (Pharmacy)
- Entertainment (movies, books, video games, shows etc)
- Miscellaneous shopping (clothing, shoes, accessories)
- Children (daycare, pocket money, diapers, clothes)
- Debts to be repaid
2. Determine your annual expenses by category
Take a look at your annual expenses:
- School taxes
- Municipal taxes
- Professional contributions
- Professional fees (accountant, notary, etc)
- Christmas Gifts
Then, if your financial health is fragile, the budget you just made will allow you to target the expenses to prioritize and where to cut.
Is there a category where you overspend? Did you buy too many shoes last year?
3. Determine what can be paid by credit card (Visa, Mastercard or American Express)
Now you know that you are used to spending $400 on groceries on a monthly basis. Can this expense be made, in whole or in part, with American Express or only with Visa/Mastercard? Sometimes you have to break down certain expenses when you shop at both Metro and Costco.
You should also look at what is usually paid in cash/transfer/check. Then you have to wonder if it can be paid by credit card somehow; through Plastiq or PaySimply, with fees, to unlock a bonus if you can’t get it otherwise.
When I asked my friend about it, she said she gave her son $20 in allowance and he saved it up to buy video games at Walmart or Amazon. Now she buys him gift cards (at 5x points) with her credit card instead!
This kind of minor adjustment saves us from leaving points on the table!
4. Determine your credit card rewards goals
In the Milesopedia Facebook community, I often see the question ”what is the best credit card to make my purchase worthwhile?”. We need to define the word “worthwile” because the answer varies for each person and we are far from having the same objectives.
For example, $3,000 in grocery expenses can yield:
- $400 worth of bonus Disney gift cards on the BMO AIR MILES World Elite Mastercard (including the exclusive Milesopedia offer)
- 15,000 Aeroplan points for a flight to New York thanks to the American Express Cobalt® Card?
If I have no intention of going to Disney, but rather to New York, the $400 from Disney is not worth much to me compared to Aeroplan points. So I’m not getting the most out of my BMO AIR MILES World Elite MasterCard purchases if my goal is to pay for my flight to New York.
Other things to consider before making a purchase besides the rewards:
Cash back or points for travel? What is best? There are pros and cons to both.
Cash Back and Rewards Points
- They are like GICs; they have a fixed value
- You can choose to apply them on current expenses or on travel expenses
- They are flexible because you are not limited by a specific company or chain
- However, you must keep the credit card with which you have accumulated these points so as not to lose them
- In some cases, a certain minimum number of points must be earned in order to redeem them
- The value of a point varies from one individual to another.
- The value depends on how you use them, so they can be worth much more than Reward Points.
- They don’t expire; just keep the account active with a transaction every 12, 18 or 24 months depending on the program terms.
- They allow us to save as much on standard travel expenses as they do on low-cost luxury.
- There are plenty of sweet spots to use this kind of points.
- Understanding how to optimize a program can be difficult for a beginner.
- They are less flexible
- We are sometimes restricted by the availability
When you are just starting out, it is more sensible to keep your focus on one or two types of rewards. By focusing your efforts in this way, you will also have time to master the program(s) in question before venturing elsewhere.
Mastering a program is the key to getting the most value out of it! You need to know how to get the points, but also how to use them to their full potential.
Is it possible to pay for trip only with points? Yes, but it’s almost impossible to do it optimally with only one type of points. The more programs you master, the more affordable your trips will be.
5. Plan your credit cards rounds and build your rotation plan accordingly
In the wallet of a point hoarders there are earning cards and bonus cards. On the one hand, the expenses you have identified as monthly should be paid with a card or cards that will give you the maximum return in the long run.
On the other hand, good timing with the big annual expenses will pay off big while using the monthly expenses to help you unlock a bonus.
Travel hacking is a marathon and although it pays to get bonuses here and there, you have to do it in moderation. I advocate a balance between earning mode and bonus mode.
For example, let’s say I have $3,000 in expenses each December… So I’m going to plan on getting a card to unlock a bonus, in November of each year.
As for the rotation plan, here is an example of how to earn AIR MILES miles:
- 2018: BMO® AIR MILES® World Elite®* Mastercard®*
- 2019: American Express® AIR MILES®* Platinum Credit Card
- 2020: BMO® AIR MILES® Business Mastercard®*
- 2021: American Express® AIR MILES®* Reserve Credit Card
- 2022: BMO® AIR MILES® World Elite®* Mastercard®*
Organizing my spending this way allows me to know exactly when to make a round, how much and which credit card(s) to apply for.
Since I have determined what can be paid with which type of card and my budget, I know exactly if I am able to reach a bonus or not.
In my personal situation, I make two “regular rounds” of cards per year (in March and November) because it fits with my expenses.
I also give myself leeway in my credit cards applications to be able to take out a new card, outside of my strategy, when an unexpected expense comes up or when an exceptional offer comes up. So it’s easy for me to always space out my requests by at least 3 months for these “surprise” rounds.
I also adjust my strategy if I have big expenses coming up like a new set of tires for next winter or if I plan to renovate my kitchen.
6. Management of credit cards, gift cards, foreign currency and points
It is recommended that you create a credit card tracking chart to remember important dates.
I’m sharing my credit cards management file (sign up at the end of the article to download it); you can use it as is or use it as the basis for your own spreadsheet. Simply modify the file to reflect your portfolio.
I also save the terms and conditions of the cards purchased and keep them in the same folder as my Excel spreadsheet. This allows me to have all the details in case there is a problem with my bonuses.
A common beginner’s mistake is not being able to unlock a bonus in the required time frame either by oversight or mismanagement:
- Enter the deadline for reaching the spending threshold,
- Set an alert on your calendar a few days before the statement date to give you time to make the expense and for it to appear on the statement,
- Enter the amount of spending required to unlock the bonus,
- Record the remaining expenses to be incurred,
- Set up pre-authorized debits for your cards payments.
Personally, I don’t like Awardwallet and prefer to put the information in the same document.
And yes, I do it manually, but it allows me to check if everything is fine with each program as well (for example, if theAeroplan eBoutique points are entered correctly).
It’s a good habit to have to keep your finances and points up to date. We have made a habit of doing this on the first of every month.
I also suggest you download the apps for each of the banks and rewards programs. It will allow you to follow the evolution of each account at your fingertips on your phone!
I also keep an eye on any foreign currency I have left over from a trip. I keep some currencies because I know I’ll be going back to certain places so I don’t lose on the exchange rate.
Finally, with respect to gift cards. I treat them as cash, so I also update them manually every month. I mainly use them for very short term purchases (gas, clothes to buy at Simons, etc) or to help me unlock a bonus. So I don’t have a fortune in gift cards and it doesn’t take long to check.
Some people will surely reiterate that managing credit cards is complicated, but as they say, no pain, no gain ! You have to work for your rewards. It’s up to you to see if the effort is worth it!