The holiday shopping season is rapidly approaching. And if you have the discipline to do it right, it can actually pay to use credit cards for your purchases. Rewards and special offers give real incentives for using your card (sometimes just for signing up!) And even though these perks are available year round, if there ever was a time to start cashing in on these advantages, it’s during the holidays. It’s a time when credit cards are clambering for your business as they up their rewards and bonuses; it’s also the time of year you are more likely to increase your spending. There’s literally no better time to start charging your purchases. (this comes with a big “BUT”):
But, you need to fully understand how these perks work so that charging it doesn’t do more harm than good; and you’ll also need to have the personal financial discipline to pull it off. That’s why we’ve put together this guide to give you all the knowledge you need to maximize the potential of using credit cards during the holidays. Of course, the discipline part will be up to you…
Choosing the right card for you
Knowing your spending habits and limitations is an important part of choosing which credit card will yield the most benefits. Cards with rewards and bonuses usually also come with high interest rates. So if you can’t pay off the balance in full each month, you may end up paying more in interest than the reward you received, defeating the purpose. As a result this type of person should typically look for cards with lower interest rates. Also, different types of rewards can benefit different types of spenders. Sign-up bonuses may be better for those who plan to use the card initially, but not year round. Cash-back/spending rewards favor those who will use their card more regularly.
Below are some of the common promotional credit card offers and what type of holiday shopper can best take advantage of them:
Cash back/Rebate rewards
- Pays you for using them with cash or rewards
- Rewards may include limitations/taxes/fees
- Usually higher interest rates
- Annual fees
Who should get this card: These kinds of cards are great for those who pay their balance in full each month. The interest rates essentially won’t matter and you can take full advantage of the rewards. If you also plan to use the card year round, you can continue to collect rewards points so don’t necessarily go with the card that has the highest initial reward rates. Those who plan on using the card mostly short term will probably want to consider these “teaser offers” with more weight. Beware of annual fees, but if the rewards outweigh the cost, it might still be worth it.
Sign-up bonus offers
- Pay you a bonus just for signing up
- May come with a minimum purchase to qualify
- Sometimes higher interest rates
- Annual Fees
Who should get this card: Those who are looking for a rewards card just to make purchases for this holiday season may want to look for cards with sign-up bonus offers. Many of these bonuses appear to be better than simple cash-back/rebate offers (particularly in the short term). Some of these offers, however, come with limitations and minimum purchases, so be sure that you fully understand the terms of the offer so that you know if you will qualify. Also, fees and higher interest rates may still apply, so if you can’t pay your balance in full each month, interest+fees might quickly negate the offer.
Store-specific rewards cards/offers
- Rewards/cash back for store-specific purchases
- Sign-up bonuses off initial purchase
- High interest rates
- Annual fees
Who should get this card: Beware of these offers at the register; Do research before signing up for these cards (read the fine print). These offers can be helpful if you shop at the store regularly or are making a significantly large purchase (for the initial purchase discount). Compare fees/interest rates to potential benefits.
Teaser interest rate offers
- 0% or Low interest rate for a short period
- Interest rates increase after teaser period
- Usually don’t have annual fees
Who should get this card: Families or individuals who are looking for a way to use credit for their holiday purchases and pay it off over the next few months can best take advantage of these types of offers. Many times these cards offer little to no interest for up to six months so this type of card is ideal for those who can’t pay off their balance right away. Be sure you can pay it off before the teaser period ends, however, or interest rates will catch up fast!
Comparison shop for the best offers
One of the more common mistakes people make with holiday credit card offers is taking the first one they see. Comparison shopping not only allows you to find the offer that’s best suited for your specific needs, but it will also help you identify the card with the best overall rewards. Be sure to READ ALL THE FINE PRINT when you’re comparing offers so you can weigh the potential rewards, limitations, fees, and interest rates that apply to you. Failing to do so is the MOST common mistake.
Paying your balance each month
Just because you pay the off the balance in full for each month’s statement doesn’t guarantee you will be paying no interest. Some cards give you a specified grace period for purchases before interest charges are applied. In other words, if you make a purchase that doesn’t show up on your monthly statements until the following month, even if you pay it off in full that month, that purchase may already be beyond the grace period and interest will be charged. Be sure to research and understand the grace period for each offer before committing.
Protect your credit score
Taking out new lines of credit can actually lower your credit score. If you already have a number of credit cards, consider getting rid of one (or two) before you add a new one just for the holiday rewards. Also, the higher the balance you keep, the more you’ll hurt your credit score.
Some other helpful tips:
- Know yourself – Don’t assume you will pay off balances each month if you know you won’t.
- Have a plan – Don’t just get a credit card because it has rewards. Decide how you want to use it so you can choose the best card and stick to the plan.
- Stay within your means – don’t spend more than you planned (or can afford) just to qualify for rewards.
- Respect credit card debt – High interest rates and heavy penalties make this one of the worst kinds of debt you can have.