LB Note: Today we have a spectacular guest post from a new friend I made at FinCon this year. Since I get a lot of questions about credit cards and how to best use them without going into debt, I thought it would be great to call in an expert.
The holidays are a time for giving: love, gratitude, and lots of presents. This year, Americans are expected to spend roughly $720 billion during the holiday season, up almost 5% from the previous year. To get the most from your holiday spending, follow these 5 do’s and don’ts.
1. Do activate your bonuses and deals
Several popular credit cards, like Chase Freedom and Discover it, offer bonus rewards at specific stores that revolve every quarter. During the holiday season, get extra rewards for shopping at Amazon, department stores, and wholesale clubs. These bonus rewards could be worth as high as 10% of your spend, but you’ll only earn it if you activate the offer.*
*Chase Freedom holders who also have a premium Chase card, like Chase Sapphire, can get up to 2c of value per Ultimate Reward point. Chase Freedom gives 5 Ultimate Reward points per dollar spent on select categories.
Activate Your Bonus Offers Today
Chase Freedom Revolving Bonus Calendar: https://creditcards.chase.com/freedom/calendarreminder
Discover It Revolving Bonus Calendar: https://www.discover.com/credit-cards/cashback-bonus/cashback-calendar.html
Before making a purchase, see if your credit card has a deal. Many top issuers, like American Express and Discover, have discounts with popular merchants. Often, these deals can be applied on top of additional seasonal promotions. However, the big catch is you have to add the deal to your card before your eligible to receive it.
2. Don’t open a store-branded card
Going with the trend of getting great discounts, it may seem like a good idea to open a store-branded credit card to get 10 to 20 percent off, right? Unless you’re buying thousands of dollars worth of stuff in one transaction, a store-branded card won’t likely be the best card for you. They typically don’t offer a sign-up bonus, which is generally the most lucrative part of getting a new credit card. They also offer poor ongoing rewards and benefits. Although opening a new card likely won’t have a big impact on your credit score, it may prevent you from opening a better card.
(Chase has a particularly famous rule called 5/24. If you opened 5 personal cards in the previous 24 months, you’ll automatically be rejected for a new Chase card.)
3. Do open a rewards credit card
The average person will spend roughly $1,000 more during this holiday season. That additional spending can be used to qualify for a large sign-up bonus. If you don’t already have cards that offer a high rewards rate (3% or more) on the merchants you buy from the most, then you should strongly consider getting a new card.
I recommend using the MaxRewards App (maxrewards.app) to get new card recommendations. The MaxRewards App will evaluate millions of different credit card combinations to find the one that’s going to maximize your rewards. The app is still in beta, but the recommendations are going to be more personalized and objective than pretty much anything else out there.
If you’re just looking to quickly find one good card to get, use the MaxRewards Credit Card Database To get the best recommendation for you, adjust your spending by clicking the “How much do I spend” button. This will give the expected net rewards based on your spending.
4. Don’t overspend
Last holiday season, Americans who racked up debt accumulated an additional $1,054 in debt. It can be very easy to go overboard during the holidays, and the vast majority of Americans do blow their budget. To avoid it, make a reasonable plan, add a small contingency (5 to 10 percent), and stick to it. If it seems like you might go through your contingency, make the tough decisions about what to cut or downgrade.
One of the big activities to avoid overspending is impulse buying. When we see a great sale, we get so excited that we often forget we actually don’t need a new espresso machine or cashmere sweater. If it’s not in your budget, take a pause and think long and hard about if you’ll really be happy with the purchase 3 months from now or if you’ll be making “don’t impulse buy” a New Year’s resolution.xfit
5. Do get a card with a 0% intro APR if you’re hit with an emergency
Financial tragedies can happen at any time and the holidays are certainly no exception. Your laundry machine breaks. Your spouse incurs a significant medical expense. Your car needs a major repair. Nearly 40% of Americans can’t cover a $400 unexpected expense, so what do you do if you’re short on cash?
If you have good credit, then a credit card with a 0% intro APR may be one of your best options. However, it’s extremely important to put yourself on a plan to pay off your entire balance before your introductory period ends. To avoid fees or significant negative impacts to your credit, pay more than your minimum balance every month. Although racking credit card debt is generally not a good idea, putting it on a 0% APR card is much, much better than putting it on a card that has a 20% or more interest rate.
Effectively using your credit cards’ features and benefits can be a great way to get more from your holiday shopping. I think many readers will be able to get 10-15% back in savings and rewards, and those who open new cards and apply the best deals could see savings and rewards of 30% – 50% of the original price. Now that’s a great deal.
Anik Khan is the Co-Founder and CEO of MaxRewards.co, a free app dedicated to empowering people to make more rewarding personal finance decisions. Prior to MaxRewards, Anik was a Business Strategy Consultant at Accenture, and previously worked in the internal management consulting group of Capital One. Anik has a BS in Economics, a BSBA in Finance, and a Certificate in Personality and Social Psychology from the Georgia Institute of Technology, where he graduated summa cum laude.