Loyalty Cards

Loyalty Cards | by Guest Author Linda Stern, Licensed Insolvency Trustee 


Are Loyalty Cards Worth It?

Who doesn’t love a bargain or a freebie? Businesses in the travel, hospitality, retail and financial service industries understand all too well how much consumers love rewards. In 2017, Canadians owned 175 million loyalty program memberships. This amounts to 6 for each adult. Organizations, large and small, entice us with free rewards in exchange for our loyalty. In its simplest form, your local cafe might offer you a loyalty card. They stamp it with a smiley face after each coffee you purchase. Once you accumulate ten smiles, they celebrate your loyalty with a free coffee. The business retains your patronage and rewards you for it. It is a win-win marketing strategy. 

Loyalty Cards & Programs

Virtually all major consumer businesses offer loyalty cards and programs. Some, like the PC Optimum Card, allow you to accumulate reward points when you make purchases at Loblaws’ and Shoppers Drug Mart stores. You can redeem the points to earn rewards, like free groceries. 

Aeroplan and Air Miles operate in a similar fashion. These immensely popular loyalty cards allow you to collect free travel rewards.

And then, we have loyalty credit cardsOne of the oldest, and best-known loyalty programs in Canada was Canadian Tire’s iconic paper money. Recently, they modernized this program by rolling it into their Triangle Rewards. This is a credit card that earns rewards when you use it at any of the banners operated by Canadian Tire. 

Financial institutions take loyalty credit cards to a whole new level. They allow you to earn rewards anywhere. You simply have to use the credit card to make your purchases and the rewards rack up automatically.  

The list of loyalty programs is endless. You can hardly shop at retail without being asked for your loyalty card. The deals seem so convenient and fair. So, what’s the catch?

The Trade-Off

The big trade-off, along with customer retention, is of course, data. In exchange for the rewards, you give up a lot of personal information about your shopping patterns and preferences. At the macro level, this allows administrators to tailor their goods and services to meet the needs of their customers. And in turn, they serve you better.

In fact, pundits touted lack of consumer data as one of many reasons why U.S. retailer, Target, failed in Canada. They understood the U.S. market extremely well. When they entered Canada, they purchased Zeller’s leases only and did not bother purchasing their data. This proved to be a costly mistake. It left them grossly miscalculating the needs of Canadian consumers. 

Needless to say, your data is big business. And loyalty programs are designed to provide you with something of value in exchange for it. Some people have no problem making this trade. After all, isn’t it all designed to make your shopping experience better?

Getting Hooked on Loyalty Cards

And therein lies the insidious problem! When you pay for goods and services using cash, you notice your wallet getting lighter in a very tangible way. Credit cards do not have this effect. The sting only catches up with you a month later when the bill arrives. Credit card purchases are, therefore, much easier on the psyche. At the moment of the purchase, they allow you to focus on the appeal of the product while minimizing the pain of the cost. A well cited Dun & Bradstreet study found that people spend 12-18% more when using credit cards instead of cash. 

When you add to this mix the attraction of rewards, it is not difficult to see how spending can get out of control. Loyalty programs entice you to spend just a little bit more to earn extra points or to reach the next reward level. Marketers in the loyalty industry understand this allure. Not only do they want customer retention and data, clever loyalty credit cards program you to spend more. You will constantly receive offers of extra bonus points for purchasing items that you may not necessarily need. And the products might not even be on sale.

Managing Credit Card Debt

Credit card debt is a mounting problem in Canada. In 2016, the average Canadian held $3,954 in credit card debt and this number grows every year. This is the hardest type of debt to get out of.

Financial literacy about credit cards should be taught at a young age.  Too many people do not understand that you actually borrow cash from the credit card company when making purchases with your credit card. You must pay it back when the bill arrives a few weeks later. Paying the minimum is the worst thing you can do. The interest charges on the balance, often in the double digits, are the highest in the debt management industry. They will leave your finances spiralling out of control.

If you are caught up in this spiral and unable to keep up with the payments, then you must seek advice from a credit counsellor right away. Every debt problem has a solution, even the direst. If you have multiple credit cards to pay off,  debt management plans consolidate these debts and facilitate your monthly repayments to creditors via one manageable amount. The best part? The interest on your individual debts is reduced or eliminated. This allows you to catch up and see the light at the end of the tunnel.

Loyalty Programs: Two Important Rules

If data trade-off is not a problem for you, then there is a way to take advantage of the benefits loyalty cards offer without falling into the pitfalls of debt. You must follow two strict and unbending rules.

First, you must stick to your budget and pay off your credit card bill when it is due. Otherwise, the interest payments will wipe out any benefits you hope to gain from earning rewards.

Secondly, never maximize your credit card limit, no matter what the rewards are. Keep your spending under 30% of your credit limit. Credit bureaus track your credit utilization limit along with your credit score.  Staying under the maximum limit informs them that you are a responsible and credit worthy consumer.

This strategy will also help you avoid the high over-limit fees if you reach the maximum, and then accidently go over it. And most of all, it will ensure that you have room left on your credit card for emergencies, when they occur. One never plans a car breaking down or emergency dental work. 

Playing the Loyalty Program Game

If you stick to these two rules, then you can start to play the game to your advantage. Make note of your spending patterns and sign up for loyalty programs for regular purchases, like groceries and gas. Always look out for annual fees before deciding if the rewards are worth it. The best loyalty cards are those that carry no fees and offer cash back rewards. And before taking advantage of travel miles for your vacations, ensure you understand the terms, conditions and limitations. Most important of all, ensure you understand if your reward points expire.

If you remain savvy with your purchase choices and discerning about the offers that come your way, you can successfully earn hundreds, if not thousands of dollars in free rewards with loyalty cards. But you must first be prepared to give up personal data and remain diligent about staying out of debt.


Linda Stern | Licensed Insolvency TrusteeLinda Stern, a Licensed Insolvency Trustee, is a guest blogger for Family and Credit Counselling Services, a blended not-for profit community-based agency offering debt counselling & management as well as family & individual support services within York region.