Last year, Americans racked up more than $1,000 in debt during the Christmas season, a 5% increase from the year prior, and this year looks to be no different.
But savvy consumers who employ the right credit-card strategy stand to save big bucks.
“If you’re worried about overspending, stick to cash or debit so you can’t go over budget,” said Ted Rossman, industry analyst at CreditCards.com. “For card holders who can pay their balances in full and avoid interest, credit cards are an awesome tool to earn extra money around the holidays via cash back and/or travel rewards.”
Here are some tips on how to use credit cards wisely this holiday season:
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1. Open a new card to get a large sign-up bonus
Many credit cards come with introductory offers that will grant new card holders extra rewards points or cash back if they spend a certain amount of money in the first three months. This is the “most lucrative” way to take advantage of holiday spending, said Brian Karimzad, co-founder of personal-finance website MagnifyMoney
The relaunched Capital One Venture card
currently comes with a sign-up bonus of 75,000 additional miles if new card holders spend $3,000 in the first three months. Similarly, consumers can earn a 70,000-mile sign-up bonus if they spend $5,000 in the first 90 days after opening the Barclaycard Arrival Plus World Elite Mastercard
2. Check if your card has rotating rewards categories
Some credit cards’ rewards programs are structured so that they rotate rewards.
The Discover it Card
is currently offering 5% back on Amazon
purchases and spending at wholesale clubs such as Costco
and BJ’s Wholesale
(Discover cards can only be used for online purchases with Costco.) Similarly, the Chase Freedom card is offering 5% back at wholesale clubs and department stores such as Macy’s
Therefore, people who exclusively shop at those retailers with these two cards stand to save an additional 5% on all their purchases in the form of cash back.
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3. Stack rewards with rebate websites — or shop through credit-card issuers’ online portals
When shopping online, pair credit-card rewards with online rebates through companies like Ebates to get extra savings, Karimzad said. To find the best rebate program, check out rebate portals such as Evreward.com and Cashback Monitor. By punching in the name of a retailer, compare the savings rates offered by different rebate programs.
Similarly, explore whether your credit-card issuer has its own shopping portal, Rossman said. “That simple extra step which takes a few seconds can earn you a lot of extra cash back, anywhere from 2% to about 30% extra, depending on the issuer and the merchant,” he said. Chase
and Wells Fargo
all offer these.
4. Don’t redeem your rewards points for gift cards
Some people will save up their rewards points or airline miles over the course of the year to convert into gift cards for holiday gifts come Christmastime. That could be a mistake. Take the American Express Membership Rewards
program: Members can get a $100 Nike
gift card for 10,000 points, since one point is equal to one cent. But it takes the same amount in points to get a Walmart gift card worth only $70.
“It’s tricky,” Karimzad said. “Usually with rewards you’re going to get the best rate by using it for travel or cash back as a statement credit.”
Also see: This is the best day to buy a Christmas tree
5. Take advantage of cards with consumer protections
Many credit-card issuers offer consumer protection guarantees that can come in very handy this time of year. Citi, for instance, offers a “Price Rewind” policy for its credit products. That allows customers to save up to $200 per item and $1,000 total per year when retailers drop prices.
Additionally, the Citi Double Cash, Chase Ink Business, American Express Gold and United MileagePlus Club
cards all come with competitive purchase protection plans, which covers up to $10,000 in losses if a recent purchase is broken or stolen.
6. Purchase some items with cash or debit
While it’s tempting to earn as much in rewards points or miles as possible this time of year, be careful about overspending. “Your utilization ratio — how much you owe over your available credit — is a big part of your credit score, so avoid carrying high balances relative to your credit limits,” said Adam West, credit strategist at Cardrates.com.
7. Make a repayment plan before you start shopping
Especially for a first-time credit-card gamer, the holidays can be a dangerous time to spend significant chunks of money with a credit card. “Undisciplined spending during the holiday season can undo much or all of the financial progress you’ve made throughout the year in terms of debt repayment,” said Greg McBride, chief financial analyst at Bankrate.
It takes five years to pay off $1,000 in holiday-shopping debt if you only make the minimum monthly payment, and you will be charged more than $500 in interest. All told, that financial hit could easily outweigh the benefits derived through credit card rewards.
If debt repayment is a concern, consider the 0% interest offers for balance transfer cards that banks advertise in the New Year, Karimzad added.