If credit cards are used conservatively, they can be a great tool for holiday shopping. When you use them, the goal is not to create additional debt for yourself, but to have a strategy that involves using the credit cards to collect points and cash back while paying off the balances before they accrue interest. If you neglect the part of the strategy devoted to paying off the debt to prevent interest charges, then your interest will offset any rewards you earn making the strategy not very strategic. (For related reading, see Maximize Your Rewards With A Few Credit Cards.)
TUTORIAL: Credit Cards
Not every rewards credit card is created the same, so pay attention to the value of the rewards. Some of the most popular rewards cards choices include:
Cash Back Rewards
- Chase Freedom VISA: After making $500 in purchases over the first three months, new cardholders will receive $200 in bonus cash back. An additional 5% cash back will be given on up to $1,500 spent in certain locations through Dec. 31, 2011.
- The Citi Dividend World MasterCard: Cardholders earn $200 cash back when they spend $500 in the first three months. They also receive 5% cash back on many purchases for selected purchases until December 31. At least 1% cash back is awarded on all purchases, and up to 5% at select merchants through Citi's proprietary online shopping center.
- The Capital One Cash card: This card offers a $100 cash bonus after you spend $500, as long as you spend it in the first three months. Cardholders also earn unlimited cash rewards (1% on all purchases) that never expire. (To read more about why using your credit card make sense, see 10 Reasons To Use Your Credit Card.)
- Citi Platinum Select/AAdvantage World MasterCard: If you spend $750 within the first four months, you can earn 30,000 American Airlines AAdvantage bonus miles, which is enough for a round trip, domestic purchase.
- Capital One Venture Rewards card: This card gives two miles for every dollar spent, and miles can be redeemed for any travel expense.
Get Rewards Without Taking Out a New Credit Card
Call your bank and find out if your VISA or MasterCard debit card is eligible for a rewards program. Some of these may be for purchases at specific retailers or a more general points program. Also, check your email for offers. For example, Starbucks has a special that allows you to get a free $5 Starbucks Card eGift when you buy four eGifts with your VISA. Store credit cards often offer a percentage off a purchase for new cardholders or rewards and coupons for spending. (To learn more, read Store Credit Cards: Do The Incentives Pay Off?.)
A Few Things You Should Watch Out for
Whichever card you choose to use, look for restrictions on rewards that might impact your ability to use them when, and how you plan. Avoid cards that charge an annual fee, unless you plan to close the account before the fee is imposed. Always pay your balance off each month so that accruing interest charges don't negatively offset the actual value of your bonuses. Only spend what you need to spend on the card. Wasteful spending in order to earn rewards takes away from the value of potential bonuses. When using a card with no interest during the introductory rate, make sure you have the balance paid off well in advance of the end of the introductory period.
The Bottom Line
In order to be effective, credit should always be used responsibly. Capitalizing on the rewards programs offered by credit card companies during the busy holiday shopping season is a great way to be responsible with your credit while giving yourself a little bonus in the form of cash back, travel and other rewards. (Do you know when you're going to retire? It might not be as soon as you think. Read The New Retirement Age.)