Wednesday, December 18, 2024

Want a Free Vacation? Use Rewards Cards – NerdWallet Canada

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From staycations to safaris, a break from the daily grind can be good for your health. But these precious vacations can come with a hefty price tag. Canadians spent over $4,000 on average on their last vacation, with 94% saying travel costs have risen in 2024, according to a 2024 Blue Cross Travel Study.

But don’t put away the beach towels just yet. Using the right credit card can help offset those rising travel costs — and might even get you a vacation for free.

Already have a rewards card?

Here’s how to make the most of your current credit card. 

  • Know your perks: Many cardholders aren’t aware of benefits like free car rental coverage or checked bags. Check your account online to make sure you’re using all available perks. 
  • Look for deals: Some reward programs run member-only deals, like discounted flights, hotel or vacation packages. Even a few points or miles can go a long way during a sale. 
  • Save your cashback. Wait until after booking your vacation to redeem the cash back, as you’ll also earn cash back from the booking and can use it to offset costs.   

Need a new card? Find a reward programs you click with

Choose a card with a rewards program that fits your spending and travel needs.

  • Miles: Prioritise flights? Look for a card that earns miles with an airline or frequent flyer program that serves your favourite vacation destination. 
  • Points: Want flexibility? Points cards let you redeem rewards for flights, hotels, merchandise, or even for cash back. 
  • Cashback: Prefer simplicity? Cashback cards give you money back, either as a credit or deposit, to help offset your vacation costs.  

Prioritize these features

Not all cards are created equal. When comparing cards to help pay for your next vacation, focus on these key features. 

Generous introductory offer

A card with a big welcome bonus, like 80,000 miles, can quickly rack up rewards. Depending on the program, sign up offers can cover a large portion of your trip. 

The catch: Rewards from a sign up bonus may not hit your account immediately, so don’t count on using them to book a trip right away. Some cards require you to spend a set amount, like $10,000 in four months, to be eligible. Make sure your typical expenses suit the requirement — in other words, don’t overspend just to earn the bonus. 

High reward earn rate

High earn rates, like five times the points on eligible purchases, can help you quickly rack up rewards for vacation expenses. Ensure the card’s top categories align with your spending habits — if you spend the most on groceries and gas, make sure the card’s highest earn rates apply to purchases at the supermarket and the pump. 

The catch: Reward rates can be misleading, as points don’t always have a high dollar value. For example, 6x points on groceries may sound good, but 2,000 points may only be worth $13. Check the card’s redemption details to see the real value of your points.     

Travel perks

Some cards offer impressive benefits for jetsetters, like free checked bags, airport lounge access, travel insurance and car rental coverage. Perks like trip cancellation or delay coverage can save you money (and hassle) when plans are disrupted. 

The catch: Cards with these perks often come with a high annual fee that may outweigh the benefits. For example, if the perks save you $105 (one free checked bag can save about $35, and car rental coverage could save around $70), but the annual fee is $120, you’re actually paying $15 more.    

How to use your new benefits to get a free vacation

Follow these steps to maximize your new card’s rewards and cover the cost of your next vacay. 

  1. Use the card wisely. Pay for everyday expenses, especially in high-reward categories, and always repay your balance in full. And, a friendly reminder to not buy things that are outside of your usual budget just to earn rewards — no vacation is worth getting into debt over. 
  2. Redeem your rewards at the right time. Some rewards programs have deals and vacation package discounts for members. Look for offers that make your points or miles go further so you have more for other holiday expenses. 
  3. Use the rewards portal for other travel needs. Some cards earn even more rewards if you book through their portal. Take advantage of accelerated rates for necessary trips to rack up even more points for fun travel.    

Example: Say you want to fly from Toronto to Miami for some sun, sand and seafood. So, you get a card that earns one mile per CAD spent on everyday purchases and offers 30,000 miles as a bonus. If you spend $2,500 monthly, you’ll reach 60,000 total miles after a year — enough for a roundtrip flight and four hotel nights in July 2025 (based on prices at the time of this writing).

Remember the risks

Applying for a new credit card just to take advantage of the rewards when you cannot pay bills or clear current debt is not advisable.

Over half of Canadian credit card holders are deemed financially unhealthy, with more than a third carrying revolving debt, according to the J.D. Power 2024 Canada Credit Card Satisfaction Study.

The key to navigating credit cards is understanding the risks, knowing your limits and making the card work for you, not the other way around. 

If you have high-interest credit card debt, focus on paying it down first. For tighter budgets, consider the flexibility of cash back cards — a popular type of reward that can offset expenses, travel-related or not. 

Lastly, avoid overspending simply to earn enough rewards for a holiday — combine points or miles you already earn with savings instead. After all, rewards are not rewarding if they’re dragging you into debt. 

DIVE EVEN DEEPER

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