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The Golden Rule of Credit Cards
Before we discuss which credit card to choose, we must establish the unbreakable golden rule of personal finance:
You must pay your credit card statement in FULL, every single month.
If you carry a balance and pay 20% interest, you are losing. It does not matter if a card gives you 2% cashback if you are paying 20% to the bank. If you cannot follow this rule, cut up your credit cards and stick to a debit card.
If you can follow this rule, credit cards are incredible tools that provide free money, travel, and purchase protection. Let’s find the right one for you.
Step 1: Cashback vs. Travel Points
The first decision you have to make is what kind of rewards you want.
Cashback Cards
These are the simplest cards. You spend $100 at the grocery store, and they give you $2 back in cash.
- Pros: Cash is king. You don’t have to navigate confusing airline blackout dates or figure out “point valuations.” You just get a check at the end of the year.
- Cons: The total monetary value of cashback is strictly capped by percentages. It’s safe, but not very lucrative.
Travel Rewards (Aeroplan, Avion, Scene+)
These cards give you points that you can redeem for flights and hotels.
- Pros: If you know how to “hack” the system, points can be immensely valuable. You can often redeem 50,000 points for a $1,500 business class flight (a massive return on your spending).
- Cons: Points get devalued by airlines without warning. Finding available flights is annoying. If you don’t travel often, the points are useless.
The Verdict: If you travel internationally at least once a year, get a Travel Card. If you just want simple savings on your daily life, get a Cashback Card.
Step 2: No-Fee vs. Premium (Annual Fee) Cards
Banks offer basic cards with $0 annual fees, and premium “World Elite” cards that cost $120 to $150 a year. Which should you choose?
You need to do the math on your annual spending.
Example: The Grocery Math
- Card A (No Fee): Gives 1% cashback on groceries.
- Card B ($120 Fee): Gives 3% cashback on groceries.
If you spend $500 a month on groceries ($6,000 a year):
- Card A gives you $60 back.
- Card B gives you $180 back. Subtract the $120 fee, and your net profit is $60.
In this scenario, it’s a tie. But if you spend $1,000 a month on groceries, Card B yields a net profit of $240, crushing the no-fee card.
The Verdict: If you spend heavily on core categories (groceries, gas, dining), the premium cards mathematically pay for themselves. If you are a student with low expenses, stick to a No-Fee card.
Step 3: Top Picks in Canada for 2024
Here are excellent starting points for different types of spenders:
1. Best No-Fee Cashback Card: Tangerine Money-Back Credit Card
- Why it’s great: You get to choose your own 2% cashback categories (e.g., Groceries and Gas). Everything else is 0.5%. No annual fee.
2. Best Premium Cashback Card: Scotia Momentum Visa Infinite
- Why it’s great: 4% cashback on Groceries and recurring bills, 2% on Gas and Transit. Massive earning potential if you buy groceries for a family. ($120 annual fee).
3. Best Travel Card: American Express Cobalt
- Why it’s great: Widely considered the best card in Canada. It gives 5x points on Eats/Drinks (groceries, restaurants, food delivery). These points can be transferred 1:1 to Aeroplan (Air Canada) for massive flight value. ($155 annual fee, billed monthly).
4. Best No-FX Fee Card: Wealthsimple Cash Card
- Why it’s great: Most Canadian credit cards charge a hidden 2.5% fee when you buy things in US Dollars (or travel abroad). This card charges 0% FX fees, saving you a fortune on vacations.
Conclusion
Don’t settle for the basic green card your bank handed you when you turned 18. Audit your spending, choose between Cash and Travel, and get a card that rewards you for the money you are already spending.