The headline sounds like a bit of clickbait, doesn't it? I know, but it's a true story, I promise! It all comes down to what method you use to pay for things. Specifically, a credit card.
A few months back in February 2020 we looked online to find a credit card that would best suit our situation. To be clear, we didn't search for a credit card because we needed money. Quite the opposite actually. We had been saving consistently since late 2019 and the reason we were looking for a new credit card was to take advantage of the awesome rewards that some of them can offer.
Using a credit card just like a debit card
We use our credit cards the same way we would a debit card. It pays for everyday expenses, bills (when there's no additional fee to use a credit card), food & dining, and basically everything that accepts a card as payment type. We also make sure to pay the balance in full each month so we don't incur any charges.
The card we chose was the American Express Cobalt, largely because of the 5x points you get for any purchase on groceries. Groceries is where the bulk of our monthly spend goes, other than housing costs, so it just made sense for our situation.
The beauty of sign-up bonuses
Most of the time, credit card companies offer great sign-up bonuses if you meet their minimum spending requirements. This card in particular came with a 30,000 point sign-up offer. You don't get all the points straight away though. Instead you have to spend at least $500/month to get 2,500 extra points added to your points balance each month.
I know what you're thinking, "So you have to spend $500 just to get 2,500 points. That doesn't sound like a good deal to me!". The important part is that we were going to spend that money anyway, we just chose to use a credit card for the purchases.
How the points system works
Credit cards generally offer one of three rewards structures: cash back, points, or miles. The type of rewards you earn will depend on the card you get. In our case, we receive points.
The way the cobalt card reward structure is as follows:
Earn 5x points for every $1 spent on eligible food & dining purchases (including groceries)
Earn 2x point for every $1 spent on travel, transit & gas
Earn 1x points for every $1 spent on everything else
So you can see why the 5x points multiplier was one of the deciding factors in why we chose this card.
Basically you build up points by spending money. Once you accrue enough points you can "redeem" them. Redeeming points is simply using them to make purchases, or covering the cost of purchases. In most cases, each point is worth $0.01 - or 1c - when redeemed. So if you had 40,000 points it would be worth $400. There are some cases where a point can be worth more than or less than 1c, but for our case each point was worth 1c when redeemed.
How you can get a flight for free
With the 2,500 sign-up bonus points applied each month (since we spend more than $500) and the 5x points we receive when spent on groceries (we spend $1,000-$1,500 a month for a family of four), our points add up quite quickly. From when we got the card in February to the end of June, we had clocked up over 45,000 points, and that was all through everyday spending and paying the balance in full every month.
Doing the math, that works out to be about $450 in value. The price we pay to have the card is $10/month ($120 annually). So the value we get from the card far outweighs the cost of the card. This is something you need to weigh up BEFORE you decide if a card is right for you.
A flight from where we live in North Western Ontario all the way across to Vancouver usually ranges from $400-$500 depending on the time of year you travel. Allanah's birthday is coming up in August, and her good friend Patty had the great idea for Allanah to fly to Kelowna (about 3hrs from Vancouver) and spend the weekend in beautiful wine country with her.
I thought that was a great idea and a good chance for Allanah to spend time with Patty, whom she hadn't seen in God knows how long. So a round trip to Kelowna and back would set us back $416 including taxes.
Given that we had $450 of point value, it was a simple process to use the points to cover the cost of the ticket. With the Amex cobalt card you don't "pay with points" as some others might. Instead you pay for the purchase on your credit card and then once the payment has cleared (usually a day or two) you log into your account and "redeem with points". And that's it!
Although credit cards aren't for everyone, they do come with pretty cool perks for simply spending money. Credit card rewards are something you and your family can benefit from if you choose to use credit cards responsibly. You can see that just by spending money that you were going to spend anyway, you can reap the benefit of travel rewards, cash back, or miles, depending on the card you have.
There's a whole world called "Travel Hacking" if you want to research the true power of rewards programs. It's mind-blowing how savvy some folks can be and the experts almost never have to pay for flights or hotel stays because they're that efficient at the game.
As always, if you have a hard time managing debt or living paycheck to paycheck, I strongly advise against the use of credit cards until you have you crap together.
Blake - FIRE with a family