For many of us, a credit card is great for online shopping and helping you buy the essentials when finances are tight before payday. And while this is convenient, what if you could make your credit card work even harder for you?
The most popular way to make your credit card work for you is picking a card that will help you accumulate frequent flyer points with your favourite airline. After all, picking the right points-earning credit card and spending wisely with it can be the difference between eating with plastic cutlery in economy class or sipping a glass of champagne before take-off. I know which option I'd prefer!
Pick an airline and stay loyal when you choose a credit card
The first thing you need to do before you pick a points-earning credit card is to choose an airline and stay loyal. If you're a frequent overseas traveller, you'll also need to make sure your airline of choice has international partner airlines that you like as well.
For example, when I was picking my points-earning credit card, I knew that Qantas Airways Limited (ASX: QAN) was my favourite domestic airline, but I also needed to consider its international partners. Recently partnering with Emirates (my favourite choice when travelling to Europe), I knew I'd be happy to stick with accumulating Qantas frequent flyer points.
Is a direct-earn or flexible points credit card better?
The next thing you need to decide is if you want a direct-earn or flexible points credit card. A direct-earn credit card will automatically transfer the points you've accumulated each month straight to your frequent flyer point balance. With a flexible points credit card, the points will accumulate with your credit card provider's award program. You'll then have the option to transfer your points to your frequent flyer program of choice.
The main things to consider between a direct-earn or flexible points credit card is the points earn rate and annual fee. Direct-earn credit cards typically have a dollars spent to points earned ratio of 1:1, while the ratios for flexible points cards is typically 0.5:1. Bear in mind that while the flexible points cards have a lower dollar to points ratio, the annual fees on these cards are lower.
Determine the value of your frequent flyer points
Finally, you'll need to determine the value of your frequent flyer points when it comes to using your points. This value will change every time you book a flight, but the same rule applies to each flight. You don't want the value of the points you use on a flight to exceed the cost of the flight itself.
For example, if you're looking at a flight that's $804 and it will be 120,000 points to book, that equates to $0.67 per point. To see if you'll be out of pocket by using points, divide the cost of the flight by the dollar value of each point. In this case, the dollar value is $1,200, so you'd be out of pocket by $396 if you used frequent flyer points to book the flight.
Collecting frequent flyer points for your everyday spending is a great way to be rewarded just for doing the groceries. Just make sure you don't increase your spending purely to earn more points. There's always a temptation to do that, but it's counterproductive.