Make It Rain - Or Not - With A Discounted Credit Card

Everyone has in his entourage an acquaintance spends weekends "in Paris" thanks to the points accumulated on his credit card. But how do they do it? What is this magic card? And where is the catch? These are just a few of the common questions we get when we talk about discount and rewards programs. Let's take a closer look. 

With close to 200 such cards available to Quebecers and Ontarians, the first question should be: what are my goals in signing up for such a program?

Choosing the right program

For discounts at the grocery store or the gas station, card issuers generally offer a rate of return of up to 2% in these categories. When you pay with your card systematically in these establishments, you can make interesting gains. Beware of Costco subscribers: this retailer is not recognized as a grocery store by most suppliers. 

Cards issued by large banners - such as those issued by Costco or Canadian Tire for example - can be attractive options. The rebate rate for these programs can be as high as 4%, but the rewards must generally be spent at the brand's stores and the excess cannot be withdrawn from the account.

For travel rewards services, these cards offer savings on airline flights and hotel reservations. However, the card issuer may limit the suppliers available for these offers. Note that loyalty programs such as Aeroplan and Air Miles can be used in conjunction to double points. 

Evaluate its use

To take full advantage of the benefits of a discount credit card, you need to use it enough to make the associated fees worthwhile. Protégez-vous magazine has established a minimum monthly amount of $2500 to take advantage of most products on the market for a household with a combined income of $120,000 or more. This is an estimate, but it gives a good idea of the cost of accessing these credit products. 

Some cards offer the first year of use at $0 and some also require a minimum annual salary to sign up. It is therefore wise to evaluate the expected benefits in year 2 in order to make the best choice. 

To facilitate this estimation work, several organizations have developed online tools that help target the card that best suits your objectives and needs. The Hardbacon platform's simulator, for example, is easy to use and allows you to project several different scenarios. 

Credit cards with rebate and rewards options may look good on paper. For consumers who don't pay off their balance in full each month, it's best to choose a card with a lower interest rate. What's the point if the rebates are used to pay off the balance on your card?

And for the weekend "in Paris", you'll have to budget differently!

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was written, designed and produced by Pierre Dauth, Investment Funds Advisor with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this blog comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.  Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.