In 2019, the year before COVID-19 hit the world, I travelled by air more than your average flyer. Internationally, I went to New York once to visit my sister, to Dubai twice to visit friends, and I also did short vacation runs to Sri Lanka and Thailand. Within India, I did 23 trips to Bengaluru, four trips to Chennai, and one to Guwahati. In all, my tickets cost nearly Rs 5 lakh, but here’s the kicker — I didn’t spend a single rupee on them, thanks to a judicious use of the reward points on my credit cards. How did I achieve this? Allow me to let you in on a not-so-secret trick.
While most people are aware of the negative aspects of credit-card spending, many people do not pay as close attention to the potential benefits that credit cards provide. Credit-card companies usually incentivise you to spend money, by offering various benefits. These can be broadly divided into two categories — cashbacks and reward points or miles.
We will be talking about rewards cards here — these cards give you rewards in the form of points or miles, which function like a currency and can be redeemed for various goods and services. In addition, a rewards card usually gives you a welcome bonus as well as a renewal bonus every year. On an average, credit cards have a rewards rate of about three-four per cent, though this can go up to 10 per cent or more in certain categories, or during promotions and sales. Thus, a spending of Rs 1 lakh will give you a minimum return of 3,000 (going up to 10,000 or more in the case of promotions) points. It is important to note here that the value of each point is not fixed and can vary depending on the type of card and the type of redemption you are making.
The opportunity to maximise these benefits lies in a smart allocation of your spends, depending on the specific offers available on your card. The best opportunities are usually in rewards cards, because they tend to have specific offers which can be "gamed", as it were.
The first step is to carefully study the features and benefits of all the credit cards offered by your bank. You can get credit cards from banks you don’t have an account with, but it’s always easier to start with your own bank because they may provide additional incentives, like lowering or eliminating the sign-up fee or increasing the welcome bonus. Pay close attention to the fine print — some cards may provide discounts or increased points on airline spends, while others may be geared towards apparel or electronics. Look at your expenses and spending patterns from previous years and find the card most suited to your style of spending. It may help to make a rough calculation of what your reward earnings would have been if you had had this card last year, and then check if those rewards outweigh the annual fee on the card.
Keep a close eye on the exceptions, if any, in your card benefits — some cards may restrict the applicable categories (usually spends on fuel, utilities and insurance are not eligible), or favour certain categories (travel, electronics and so on), while others might be tied to a specific merchant or retail store (for example, co-branded cards with e-commerce sites, or airlines, etc.). When you do select a card, sign up for its promotional emails, so you are always aware of the seasonal offers. Make it a habit to visit the card’s website on a regular basis, so you are up-to-date on any changes in its features and benefits.
It also helps to be flexible in your spending habits. This doesn’t mean changing how much you spend, but changing how (and where) you spend it. For example, a cellphone is the same whether you buy it on one e-commerce site or another, and an air ticket is the same whether you buy it directly from the airline or on a travel website. Usually, cards will require you to click through their affiliate site to the merchant, which means you can’t just open the merchant’s app directly on your phone and make the purchase. Yes, it’s inconvenient, but the reward will outweigh the convenience factor. Be willing to switch up your spending habits and patterns, depending on the offers from your card.
Redemptions for travel can become complicated if your card doesn’t let you directly redeem for the ticket, but gives you airline miles instead. You will then have to check the redemption table for that particular airline, to see how many miles you need. It’s critical to note here that while the miles you get are "free" from your card, the airline may still charge you taxes and other fees, which sometimes work out to a substantial portion of the overall ticket cost.
Apart from helping you reduce your spend on flight tickets, there are other ancillary benefits — in the form of free access to airport waiting-lounges, or travel insurance. Some high-end cards may also give you benefits at certain hotel chains, such as status or spend vouchers. Premium cards even have a concierge desk you can use to avail special experiences, or reservations at that Michelin-starred restaurant. Every little thing adds up on the quest for the perfect vacation.
The most important thing with maximising your credit card is to change your mindset. Look at your expenses as a way to help you get closer to your goal, and try to convert each expense into a credit-card expense. See how you can get around any restrictions on your card. For example, if your card doesn’t give you any points for utility payments, use your card to fill up a digital wallet and then use that to pay your bills. There are services now that let you pay your rent through your card, and in a city like Mumbai, that result in significant rewards. Once you start seeing every expense through the lens of reward points, you will see a path to your next big vacation!