From The Because Money Podcast
Are you a Rewards Program Optimizer or do you get suckered in to the latest bank credit card program to separate you from your money?
Feel free to leave your thoughts in the comment box below, how do you manage your credit card rewards programs?
Jackson: I think we're ready to rock 'n roll.
Hello everybody, and welcome to another episode of the Because Money podcast. I believe this is Episode No. 12. That means we've had 11 of these before, and people are actually watching. So hello out there in the real world.
I'm Jackson Middleton and I'm one of your hosts, along with Robb Engen and Sandi Martin. We're here to talk about money. We're here to talk about credit cards, and how wonderful they are and how absolutely terrible they are. So if you want to join the conversation, you can hit the Twitter at #BecauseMoney.
I will promise to do my best to get your opinion, your words, your insights, your points of view, and on to the podcast.
I'm going to start with Robb. He's going to break down, dissect, and look at credit cards and tell us probably which ones the best. Sandi's going to say something really smart, and I'm going to just I have an emotional rant about how much I absolutely abhor credit cards. So Robb, onto you bud!
Robb: Well, now we know where you stand, Jackson.
So we're going to talk about rewards credit cards. They've come into the spotlight in recent years in a number of ways, particularly in the last year or so. There was kind of a nasty fight the right to issue Aeroplan credit cards in the last 12 months. So TD and CIBC fought for the right to issue those cards. They ended up splitting the portfolio down the middle, and everybody got mad because they got either shipped over to TD or they got stuck with CIBC and collect Aeroplan. That's probably the richest travel rewards program in the country, and there's also AIR MILES.
All the banks have started to issue their own versions of a travel rewards program. RBC's got their Avion program, CIBC even introduced another just in case they lost, I'm assuming, the Aeroplan portfolio, and they introduced the Aventura card.
A lot of these are geared toward a certain type of customer who will put all their purchases onto a credit card. They make money every time you swipe your card because they charged businesses or the retailer's that you shop at. They charge them an interchange fee, they call it, or a merchant fee. Then they also make money if you don't pay off your card. That's obviously the big one and we're going to talk a little bit about that too.
I started collecting rewards a couple of years ago. I was a like most Canadians, I was die-hard debit fan or debit card user. So all through school, my wife and I both had an unlimited chequing account where we could do as many debit transactions as we wanted. When we were students we didn't pay for it, but of course we graduated to working people and they started to charge us $12.95 a month for the privilege of using our chequing account and still using those unlimited debits.
So I kind of figured out, just through reading different blogs and that sort of thing, that there were rewards to be had. If you just change your behaviour and look at the method of payment that you use is just that, it's just a tool. So you can either pay by cash, you can pay by debit, or you can pay by credit card, and as long as you're paying off your balance why not use the method of payment that pays you back a little something.
And so first I started using the PC MasterCard through President's Choice, where if gives you something like 1% back at your shopping at Superstore and Loblaws. I kind of always gravitated towards cash back rewards, and that particular reason is because travel rewards are so complicated, I find, that you can never figure out exactly what you're getting back. So the cash back it's straight-up and I'm getting 1% back or 1.5% back. It's nothing to calculate and you can either get a cheque back for it or get a statement of credit issued.
I'm a big fan of reward cards. I've done a lot of research on them and I like them. I thought I'd throw it over to Sandi here, who recently got into the rewards cards market. Sandi, why don't talk about that a little bit.
Sandi: Well, I always had a cash back card because it made sense. It didn't have a fee; it had a cash back. And my biggest complaint, and I actually came to you with it months ago. I hate spending on my credit card because I don't know what the balance immediately. My card always took about 48 hours before transaction was actually posted to my account, and that was bothersome to me. I need to know right away. I'm obviously that kind of person.
And you told me that there was a particular cash back card that also had no fee and it updated immediately. It's that's MBNA SmartCash card. It's the blue card in my wallet. I have to say it would be an overstatement to say that I have now started on the rewards journey because I'm still hate using it.
Robb: You drink the Kool-Aid, is that right?
Sandi: No, I don't ever think that I'm going to be a rewards card optimizer. No, excuse me, at some point when my margins are bigger I think it probably will put all of my transactions and bill payments on a credit card. But my margins are small enough now that psychologically I don't spend well on a credit card, so I'm just not going to do it that way.
Jackson: Come on, you're next blog post is going to be "All aboard their rewards train with Sandi Martin". Come on, you're on the bandwagon now.
Robb: So Sandi, has it now fit it into the way you handled your finances day-to-day. Obviously, you said you're looking for that immediate posting of a transaction. Has this kind of blended in now with how you typically handle your day-to-day finances, or have you had to make any kind of adjustments.
Sandi: No, I haven't made any adjustments, and I know there's people out there that are really good at optimizing and can just switch their behaviour like that, because it makes sense to put money on a cash back credit card; I'm going to do it that way, the end. And they're super fantastic at it. I am not. I'm a messy person, and I know that my weakness is to not really keep track of things. Surprise. I don't like keeping track of my transactions, I don't like having to log in every day and categorize things. I just want to see a balance and know I've got that balance until the 15th of the month, and that's how I'm going to do.
I only ever spend out of a spending account. I mean I'm stupid. Maybe I'm leaving money on the table by not using a rewards card for my things like my cable bill. It's not going mesh very well until maybe some day when I have more money to spend.
Robb: I'm an optimizer now, so I found that with the cash back cards there's certain ones like you talked with the SmartCash card, and that's the one you've got. The benefits to the SmartCash card, well obviously it's a no annual fee card, so that sits well with a number of people who don't want to pay for the privilege of using a card. But the other thing is that you get extra cash back when you purchase groceries or gas. So a kind of typical spend at a grocery store or filling up your car, you're going to get 2% back. Well, 5% back for the first six months and then 2% back after that.
So what I found is when I looked at and analyze my spending habits, and I know I spend $x amount on groceries and $x amount on gas, and then $x amount on recurring bill payments, and $x amount at Costco. So I've now found, and it's taken me about four credit cards to do this—which is stupid, I know, but I do it—that I've optimized my spending by using the right card. My wife is probably is like, "Which card do we use now?" for groceries or for whatever. I said, "No, you gotta pull out this card for groceries or gas".
It has taken steps, and it's definitely not painless, it's not seamless by any means. So I use the Scotia Momentum VISA Infinite for groceries and gas, because it pays the most cash back for those. But I also find that we shop at Costco, so I have the Costco American Express card, and that pays back the most on restaurants for some reason. So if you're out at a restaurant, that one pays 3% back on restaurants.
So I've kind of optimized our spending that way. I would love it if someone came out, ING or something like that, came out with a straight-up 2% cash back credit card that you could spend anywhere. And you didn't have to worry about needing this card for this place and this card for that place, because that would make my life a lot easier, and a lot of people would feel that way. But right now I'm sitting with four credit cards, and at a little bit a juggling around with the finances at the end of the month to pay them all off.
That's where I'm at, but I always pay them off, and I find I'm earning about 2% back, so I think it's worth it. I'm going to thrown over to Jackson who might not think it's worth it.
Sandi He's going to explode. [laughs]
Jackson: Well I actually was going to unmute my microphone and I almost hit stop broadcast instead. That would have been a mic drop, for sure.
No, see I've got a really bad past with credit cards, and I fully admit that I've never really been that financially responsible. My problem is that I'm an entrepreneur, I'm an innovator, and I'm an optimist. And those three things don't really go well together when you're dealing with money.
I actually got my first credit card when I was 17, not 18, 17. They gave it to me when I walked in, as long as I promised to put away $50 a month for RRSPs. My first credit card was a $3,000 balance. And what do you do with the first car? I bought a car. And then I went to Boston Pizza and treated a table of 28 people, because I had what I thought was a spending limit, what was the "balance available" limit, I thought was spending limit.
In my head I hadn't actually figured that you actually had to pay this back. I knew that I did, but you only have to pay back $10 a month. So when my credit card maxed out, I just went over to the RBC and picked up at VISA, and then used my VISA to pay off my MasterCard. And that really didn't work out that well.
So for me, starting very young, my credit management has just been horrible, and I actually for many, many years--when I got out debt the first time, I basically just paid off everything and closed my credit cards. I left a small line of credit open, but then what happened is—again, I'm an optimist and I'm an entrepreneur—I needed credit for the business. Needed. I didn't need any credit. I needed to work harder and save my money and be responsible.
But that aside, what happens is when you're a business owner and you're making good money, everybody starts throwing money at you. It's like dollar bills everywhere. So I get these credit card balances, and I was the guy who is like reducing my credit card limit, "No, please no". I've had a $4,000 limit and it's all of a sudden it's $8,000, no problem. It's like, "No, I don't want that".
Actually, I just had exactly the same thing happen to me again. I've got the TD Aeroplan VISA Infinity. Apparently I just got transferred over that. I had something else, and then they said, "Well, we're going to change it over". I had a $4,000 limit and now I've got a $5,000 limit. I still struggle with that being $5,000 I can spend, because I'm an optimist. I'll get a big cheque, no problem. I'll get a commission cheque, I'll write off, pay it off, no problems, and I'm out. And that's the way I've been most my life.
So for me, I don't like credit cards because I guess I know myself, and unfortunately, I think there's a lot of people in a similar situation who when they're looking for smart financial advice, they go to finance blogs and it's like "Optimize Your Credit Card". Yeah, it makes sense. I didn't exactly the same thing. I asked Sandi what kind of credit card she used. Did I ask you Sandi?
Sandi: I don't remember a conversation about credit cards. I probably would have said don't do it. [laughs]
Jackson: Don't do it. I forget who I asked about a rewards card, but it's like yeah, the TD rewards card's a good program. Well what happens, is psychologically I'm going to put everything on my rewards card. You know why? Because I'm getting points. And I've never redeemed a point in my life, but 10 minutes after finding out they exist, they're the most important thing in the world to me. And I'm spending all of my money on a card, and then what happens? I don't get my commission cheque, or it shows up late. I don't pay the balance off. I mean, I'll the pay the balance in full, but I get tagged for some interest because, again, I'm not financially responsible.
So my problem with credit cards is more the fact that it allows me to be stupid, and I don't like being stupid. I want to be financially responsible. It's not like I'm completely irresponsible, but credit cards allow me to be more irresponsible than I should be. To take it to the next level is, as a small business owner, sometimes I charge for social media consulting services and such. And online it takes a lot to your money just to be able to offer credit cards, through FreshBooks or PayPal. I mean, it's a significant portion.
There was a business in Regina, here. It's a meat shop, and I have a passion for meat. They have a big sign right on their desk that says "We Do Not Accept Credit Cards or Credit Card Debit Cards. Cash or Straight Debit." And I asked her once and she said it was basically because it costs her too much money. Now I just wrote that off as her being cheap and decided I'm probably not going to do business there.
But then it got me thinking, no she runs a small independent business and she's trying to offer the best products she can at the lowest price, because she's competing with bigger outfits. So I actually started shopping there and it wasn't that hard for me to go and get cash and remember to bring that in.
So for me, I don't really like credit cards because it allows you to be financially irresponsible, and I'd like to open up the conversation to small business owners and the cost of credit cards, because it costs a lot of money to use them.
Robb: That's been a big thing the last year or so. I mean, there was a something put through to the Competition Tribunal to say we, small businesses or businesses, want to be able to charge a surcharge onto people who pay by credit card. So of course, all the bank lobbyists and credit card industry lobbyists said no way, and actually, frankly so did a lot of consumers who said it was unfair to treat that portion of customers and tacking on a surcharge. It is it is legal, I guess, to offer a cash discount, but you can't add a surcharge based on the method of payment.
So basically, the small business lobbyist group, CFIB I think it is. They've got a big campaign now. I think Gail Vaz-Oxlade in on-board. She's a big cash proponent, and they launched a campaign late last year that was called The Credit Free Friday. So every Friday you put away your credit cards and especially when you're going for your coffee or you're going for those small purchases.
Jackson: Gail wants you to actually take your credit card and freeze it in a block of ice. You can still do internet purchases if you can read the numbers, but I'm just saying.
Robb: And I respect that. So as a rewards card fan, I do respect that. I guess my issue would be that you I want to know that you—as a small business, I totally get that that's a cost that's put onto you, and it's put onto everybody. I want to know if you've built that into the price and then just complained or cried the blues about the surcharges. Or are you actually trying to save everybody money and absorbing those fees, then I have absolutely no problem paying cash or debit, or whatever, and feeling like I'm helping out the small business owner or the mom or pop shop.
Jackson: Yeah, that's a tough to answer because I mean personally, I'll build it into the price and then I won't ever mention it. But I know that she might not just be taking it and that's fine, and then just keep the profit. But you never really can tell.
The Potato, I believe who is a friend of the podcast, just jumped in on Because Money, and he says, "I get dinged over 3% off of credit card payments for my business, but eat it". And then he put JIC. Sandi's our acronym specialist. I think that's "Just In Case". That's the factor for a client.
But yeah, I think that's a really smart point because if you're not offering credit cards and your competitor is, and it's convenient, there you go. It's also terrible if you're the person always uses your credit card, and you show up to a place that doesn't take credit cards, and you don't have a debit and you don't cash, well what do you do? You leave your goods on the counter and you walk out the door.
Sandi: And that's the thing, when you're charging people money for your services. Obviously you want to be a savvy business owner and make sure that you're not letting a whole much money walk out the door in fees, if you don't have to pay for them. But at the same time, I don't want to have points of friction between me and my clients, that are avoidable. You know what I mean?
If I say I'll only take PayPal, that's going to be a problem for a lot of my clients. So of course I'm going to eat the charges monthly, or I'm going to pay the Interchange fees, and I'm going to take VISA and MasterCard, and Interac, email money transfer, and all that kind of stuff. Because I want the client to be able to pay, because I like being paid for things. But I'm probably not going to moan about it on Fridays.
Robb: And rather than little sign that says small business owners are all getting screwed, I'd rather see a sign made up in-house or by that retailer, to say hey look I'm trying my best to keep the costs as reasonable as possible, and I'm absorbing these fees, and make your ask there for paying cash or debit.
To put it as, "I'm trying to keep prices low" or "I am keeping prices low, but I am eating this, so would you mind?"
Jackson: We've got some action on the Twitter. Twitter is abuzz. Warning, Twitter is abuzz. Gord McCallum jumps in and says, "We've discussed accepting credit cards for insurance clients, but the tax fees with eat up 25% of our commission". That's 25%. He goes on, "Apparently the cost to the merchant on loyalty credit cards is even higher".
And I think the Potato say that. No, he says, "I'm sure that's the fear that drives the business".
Noel D'Souza, another friend of the podcast, says, "I believe reward cards charge businesses a lot more than 3% to pay for the rewards".
So businesses are actually charged more for the type of credit card that you use?
Robb: Yeah, certain types of cards. There's like VISA's Infinite card. That's what you talked about with your Aeroplan card. So that's one of these high premium cards.
Jackson: Awesome, so I'm going to get rid of that immediately.
Robb: And then MasterCard has Aspire. So what happens here is that in order to qualify for these cards you have to make a certain income threshold. It's like voluntary code or something like that, that the federal government imposed to say if you're going to keep introducing these higher spend, higher premium cards, we've got to put some kind of threshold on it so not everybody could get it. So they put on these income thresholds.
So some people wonder, so I talk about should Momentum VISA, or whatever the card it. And some people say they can't qualify for that card because they don't make $60,000, or whatever the case is. They say they're getting penalized because they don't qualify for the best product and they have to get the "no fee, I only need to make $12,000" card or whatever, card. But that doesn't give you back the most rewards.
Jackson: Well I'm going to correct something from the Twitter. Apparently (tx) means transactions not tax. I just needed Sandi as my acronym specialist there.
And Gord wonders if Dan Kelly from @CFIB would like to comment on the subject tonight?
Robb: I'm sure he'll jump on. He's pretty active in defending this issue, for sure.
Sandi: Here's the thing. When you see commercials from a credit card company, that encourages everybody, "Oh, points!" Obviously, they're not just giving it to you out of the goodness of their heart. Obviously a really smart consumer is going to take advantage of whatever the credit card company is going to give them and ride the backs of people who are not as savvy as they are, and who are going to be paying increased interest, and putting money into the credit card company's pocket.
And it's not the merchants that are making the money. I mean, to paint the whole thing with one brush and say, "You should definitely put everything on her rewards cards" or "You should never put anything on credit cards at all". I think that's really simplistic, although I wouldn't say that you are saying that.
Jackson: I think you're right on, because I mean, listen! The banks don't make decisions based on what's best for you. They've done the calculations. They've looked at it, and they can say we can offer these rewards because we know we're going to make money.
The banks are in the business of making money. Credit card companies are in the business of making money. If you believe you're that one person—which I actually believe Robb is—that can take advantage of the system and work it and make it work perfect. If you're more of an average guy like me, I don't know that that's necessarily the best way to go.
Robb: Well hey, and if the net result, like I said, if I just use the method of payment as a tool, and so cash debit or credit card, I'm going to use whatever is in my best interests, and they start imposing a surcharge on credit card purchases, Well, I'm damn well not going to be using that credit card anymore. I'll switch back to my ING free debit card, and my net benefit is zero, but I'm not paying for anything and I'm still going to do what's best for me. So that's how I look at it.
Sandi: To me, if somebody is jumping into cash management and trying to optimize their financial situation, and this is their first go-round at it, I would say probably don't start with putting everything on a credit card. Like you can and it doesn't make you a dumb person. But if you maybe just leave that for step number three and graduate to that.
Robb: Yeah, and like I said, I did the PC MasterCard I just put a few things on there until I figured out, you know, I get paid once a month. How can I time all this so that it all works out and I don't pay red cent of interest, because I don't do that. So it's been a process over four years or so.
Jackson: I'm going to just throw out the fact that the part that I hate about credit cards—against Sandi kind of touched on it—is the fact that they don't report immediately what goes through. Come on, give me a break! It's a gimmick. It's a trick. It happens. They do it on purpose so that you don't know what you're spending.
When I transfer money to my credit card from my bank, it should show up immediately. Everything else does. I mean, come on, give me a break. But let's go to the Twitter, because we've got actually a serious question.
Gord wants to know about the panel's thoughts on flight rewards cards; best value versus worst value. And he wants know the tax implication for business owners who collect points and redeem personally. I think Robb, that's probably in your suitcase.
Robb: Well, if we go the flight rewards, I think the best bang for your buck, if you go to the authority's site for this, it's called RewardsCanada. Patrick Sojka—he's from Calgary and he runs the site. He's done this for a number years now, and for four years in a row that Capital One Aspire Travel World MasterCard has been the top card. And the reason why is not just because of the earning potential of the card and the bonuses and whatever. That's all very good, but it's the redemption. That's where everyone runs into so recurring issues.
Aeroplan customers, I have them email me all the time saying how frustrated they are. I had a guy who had 350,000 points. He wanted to fly him and his son to Scotland. He had more than enough points to fly business class there. When he calculated it all and went to the checkout for his redemption, $2,200 in taxes and surcharges. That doesn't really feel like a reward. It doesn't really feel like a free reward.
So that's been the problem with Aeroplan and people redeeming their points. Just like Jackson said, I can earn all the points in the world but when it comes time to redeem them I can get a good flight, there's blackouts, restrictions, whatever. I've got to fly all over the place and take the redeye, and then pay another $500 or $2,000 in taxes. It's ridiculous.
The nice thing about this Capital One program they call No Hassle Rewards, is you book the flight with your credit card on any airline, any travel centre. You’ve just got to see the transaction show up on your statement. Then you go online on your statement and you click to redeem your rewards, and it just takes it out. It pays it right off of your statement.
So taxes, that's anything. That's what people want, is all-inclusive I want to be redeemed when I want, how I want, and book my travel however I want. So that's where you're going to probably see the trend going with these travel rewards programs is that, you know, CIBC's got this Aventura. That's what they talk about with the penguins flying around.
Jackson: You still watch TV?
Robb: And then Amex cards are the same. They want to give you more flexibility so you can book your points. Who wants to pay $2,000 in fees and taxes when they think they're getting something for free.
Jackson: Compared to the regular rewards point, what's more popular and what's better bang for your buck, travel or rewards cards?
Robb: So, travel rewards are the most popular, by far. People love that. They get to their destination or their vacation. I can pay for my vacation with points. It makes a lot of sense. The problem is you can get the most bang for your buck, and Aeroplan is no exception. With Aeroplan, you can get a really good bang for your buck, as far as your points go.
But the problem is trying to figure out what you're getting back, as opposed to cash back or 1% or 2% is what it is. Trying to figure out the different tricks and whatever you need to do to in order to redeem them, and then trying to get the flight you want or to book with the partner that you want, or whatever. That's where it gets all tricky.
The flights can be good. I've heard business class tickets on Aeroplan can actually be very good value, provided you're not spending $2,000 in fees. I'd say, I like cash back personally, because like I said, it's just the most straightforward, easy way to go. And the worst is redeeming them for merchandiser or gift cards or whatever, because they devalue them. If you're getting 1% or a dollar for cash back, the merchandise that you redeem for is like worth 50 cents to 75 cents.
Jackson: Oh seriously, 980 million points for a blender. Seriously, it's just insane! But Gord, let's go back to the second part of the question. Tax implications of redeeming points for business owners. Have you ever tackled that subject, Robb?
Robb: Actually, I think I talked Mark Goodfield for The Blunt Bean Counter. So for everyday people that are just claiming them for their own individual purposes, there's no issues there, tax-wise, but business there would be. So there would be a taxable benefit there for claiming the points for your own. That's my understanding. I'm no accountant.
Jackson: Next, he says, "You're right about Aeroplan. I have a gazillion points I've just looked at redeeming. It's a disaster". Then he said, "Any experience using Points.com to divert flexible points? No doubt they take a pound of flesh". Have you ever heard of that website, Points.com?
Robb: Actually, I've used it, because I used to collect Aeroplan points. When I was in the hotel industry I would fly a lot, and I could collect them. But now I don't collect them and I don't fly a lot, so I converted them into Esso extra gift cards or something like that. And they certainly do take their pound of flesh. But it's a good way to trade unused miles or points that you just can't find a way to do.
If Air Miles is one of them, and you ended up getting stuck in the dream rewards basket and you're now wanting the cash rewards, then dream rewards would be a good one to trade on that website, if you want to get rid of them, because there's nothing left to redeem.
Jackson: So Potato did ask another question, but then he deleted his tweet. Sorry about that, Potato, if you're out there. That's where we're at, and anything else we want to talk about?
Robb: Just to give a rundown, I would just say, like I talked about that RewardsCanada blog. Check that out or if you're looking for more popular travel rewards cards. And Patrick, he goes through the ins and outs of the whole program. What you need understand if you're going to travel program, because it can be confusing. It's not just how much you can earn. You know, I can earn two points for here, and I get 25,000 bonus points here. You want to know how to redeem them. All the points in the world don't matter if you can't redeem them for anything that you want.
If you find you're not interested in the travel side of things, I'd say the best bang for your is going to be with a cash back card.
Sandi: I thought we were going to get to argue more. [laughs] Oh well, next time.
Jackson: I hate credit cards.
Robb: There you go. Get your dig in.
Jackson: Sure, why not? Just talking about points, I know that I mentioned this before, but I've collect those Air Miles since 1996 and I, honestly, have enough to buy a blender. It's infuriating. I guess you've got to do it well and you've got to be responsible for it.
There you go. That's what I'm going to say.
Robb: I think that's it.
Jackson: Just to let everybody know, we did plan like a completely awkward trail-off. Where we all just kind of sit here like this.
Sandi: Just totally scripted.
Jackson: Completely, 100%. Anyway, good conversation. We're out of here, good-bye.
Robb: See you next week.
Sandi: Good-bye. [laughs]