How Much Do I Have to Spend on a Credit Card to Breakeven?

When looking for a rewards credit card, it can be tempting to choose a premier card that offers a big sign-up bonus and other great benefits. But before committing to one of these credit cards, you should first consider how much money you’re going to spend on it. Rewards credit cards can come with hefty annual fees, of which a large portion of your spending may simply be required to counterbalance – this means you’d want to spend even more, to make sure you’re really getting some benefits from the card.

Here are two of the best credit credit cards in Canada, with calculations to show how much you would have to spend on each to breakeven. Should you sign up for either card? Yes! As long as you spend more than these amounts each month…

BMO World Elite MasterCard

• 2 points for every $1 spent
• 10,000 points = $100 (each point is worth $0.01)
• Annual fee = $150

NOTE: Changes to the BMO Rewards program and point value were made in 2018 – click here for details.

To Breakeven:

To find the amount of points you would need to earn in order to breakeven, divide the annual fee by the value of each point:

Annual fee / Value of each point = Breakeven points
$150/$0.01 = 15,000 points

To find out how much you need to spend each year to breakeven, divide the breakeven points amount by the number of points earned per $1 spent:

Breakeven points / Points earned per $1 spent = Annual spending required
15,000/2 = $7,500

Finally, to find out how much you would need to spend each month, in order to breakeven, divide your annual spending by the 12 calendar months in a year:

Annual spending / Calendar months = Monthly spending
$7,500/12 = $625/month

To breakeven on the annual fee with BMO World Elite MasterCard, you would need to spend at least $625/month. If you’re not prepared to spend this amount or more, it doesn’t make sense to get this card, as the annual fee would outweigh the rewards you were receiving for using the card. But $625 isn’t much, so it’s nice to know how little spending is required to breakeven on this card.

Now, finding out how much you need to spend to breakeven on the annual fee becomes more difficult with cards that offer extra points for certain categories (gas, grocery, drug store, etc.). In the example below, we will look at how much you need to spend to breakeven with one of the top category earning cards on our site.

Scotiabank Gold American Express

• 4 points for every $1 spent on groceries, gas, dining and eligible entertainment purchases
• 1 point for every $1 spent on all other purchases
• 10,000 points = $100 (each point is worth $0.01)
• Annual fee = $99

To Breakeven:

Before we can find the breakeven spending amount, we first have to create a spending profile to find the points earned per $1 spent. For this example, we will use the following spending profile:

To find on average the points earned per $1 spent, divide the total points earned by the total spending:

Total points / Total spending = Avg. point per $1 spent
3,110 points/$1,250 = 2.49 points per $1 spent

To find the amount of points you would need to earn in order to breakeven, divide the annual fee by the value of each point:

Annual fee / Value of each point = Breakeven points
$99/$0.01 = 9,900 points

To find out how much you need to spend each year to breakeven, divide the breakeven points amount by the number of points earned per $1 spent:

Breakeven points / Points earned per $1 spent = Annual spending required
9,900/2.49 = $3,976

Then to find out how much you would need to spend each month, in order to breakeven, divide your annual spending by the 12 calendar months in a year:

Annual spending / Calendar months = Monthly spending
$3,976/12 = $331/month

To breakeven on the annual fee with Scotiabank Gold American Express, you would need to spend at least $331/month. If you’re not prepared to spend this amount or more, it doesn’t make sense to get this card, as the annual fee would outweigh the rewards you receive for using the card. But $331 is just over half of what’s required to breakeven on the BMO World Elite MasterCard, and it’s likely that most households spend at least this amount on gas and groceries each month. No wonder the Scotiabank Gold AmEx is one of the best credit cards in Canada.

Before applying for any credit card, use our credit card rewards calculator to see what rewards you would receive with different monthly spending amounts. And don’t be swayed by big sign-up bonuses. Make sure that you will spend enough to justify getting a card with a high annual fee, so you can not only breakeven but come out ahead.

Flickr: tomhanger