Keep a tight rein on credit card shopping this holiday season
By Abigail Mason, LendEDU
It’s here! Santa is showing up on all the TV commercials, and my, don’t those turkeys look appetizing?
This year, you’ve promised yourself to keep a grip on spending, despite the avalanche of ads imploring you to do otherwise. Don’t look upon your cards as instruments of the devil. Rather, treat them as useful tools that can be deployed wisely. This requires a little knowledge and a little planning.
We’ve laid out seven steps you can follow to maximize the usefulness of your credit card spending during the holidays while avoiding the financial hangover in the new year:
- Your limits vs. their limits: Each of your credit cards comes with a spending limit. Bully for them. These limits are not the important ones. The only limit you need to bear in mind is how much you can pay off at the next credit card payment date. Don’t spend more than that amount and you’ll avoid accumulating credit card balances that cost you interest. Most cards don’t charge interest if you pay your entire balance each month. By avoiding interest, you’ll have more money to spend on sugarplums and candy canes, and you won’t dilute the card rewards with interest payments. Best of all, you won’t accumulate debt and the accompanying financial risks.
- Maximize your rewards: Some credit cards pay rewards on everything you buy. Others pay higher rewards, but only on select types of items, items than can rotate every three months. If you’re taking a holiday vacation, use a card that rewards travel, car rental, hotel stays and so forth. On the other hand, if you like to give frequent holiday parties, use a card that rewards you for supermarket shopping.
If you don’t have a card that sufficiently rewards you for the types of purchases you plan this season, apply for one that does. Also, be on the lookout for special holiday promotions. Some cards may offer double rewards during the holidays, or maybe extra cash back for department store purchases.
- New cards: As we alluded to, your old cards might not be optimal for the holiday season. Maybe they don’t have worthwhile rewards programs, or the limits are too low, or they charge too much interest. You want a card that has a low fee, (including zero fees for the first year), a reasonable credit limit and a generous rewards or cash-back program. Card comparison websites are a good resource for finding out about which cards offer the best ratio of rewards to fees, as well as alerting you to special sign-up bonuses for the holiday season.
Opening a new credit card might cost you a few points on your credit score, so don’t open too many. Also, don’t open a new account if you plan to buy a car or home in the next several months, because you’d like the highest credit score you can get before making a big-ticket purchase.
- Be skeptical of charge cards: Department stores and boutiques love signing you up for their exclusive charge cards during the holidays. Normally, they offer some good-looking rewards, such as half off your first purchase, to entice you into applying for their card. But before you jump, do a little research. Find out how much they charge in fees, their credit limits and their interest rates. Do they offer cash-back or reward programs? Also, consider how likely it is that you’ll ever use the charge card again.
Remember, getting a new card with a low limit can hurt your overall credit utilization ratio (debt balance/credit limit), and ding your credit score. It might be worth it if you regularly shop at the store.
- Use the perks, Luke: Many credit card issuers offer special perks that can really be valuable over the holiday season. For instance, your card may offer a price protection plan: If the item’s price is reduced over the next little while, you can receive a partial refund on your purchase price. That’s great for holiday shopping, because you can shop early without sacrificing the benefit of late sales.
Also, if you are traveling this season, check to see if your card offers benefits like luggage loss protection or automatic collision damage waiver on a car rental. Look also for fraud protection, extended warranties and longer gift-return time frames.
- Check out shopping portals: Do you know about these? They are websites run by card issuers with links to all the major online retailers. These portals usually offer exclusive discounts, additional cash-back rewards and/or extra points or miles. For anyone who shops online during the holiday season, it makes sense to first visit shopping portals and see how much extra you get for using them. After all, triple your cash back can be pretty handy during the holidays.
- Tap into apps: Most major credit cards come with smartphone apps you can download. These apps let you keep track of your spending as well as the cash-back or other rewards that you’ve racked up so far. You can use the app to redeem your rewards on the spot. If you have multiple cards, you can use an e-wallet app to handle all of your credit cards, and to enable payment by phone instead of by card. Some apps even tell you which of your credit cards will provide you with the biggest reward for a particular purchase. The Points Guy offers a credit card rewards application. Check it out!
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