The holidays and spending often seem to go hand-in-hand. In fact, many start resigning themselves to stretched budgets and shopping stress starting in October.
But if you're planning to use your credit card for holiday purchases, there are plenty of smart ways to ease the burden by earning (and spending) extra rewards points on the shopping that lies ahead.
“There are really so many different ways where using your credit card for holiday shopping can work toward your advantage,” says Scott Bilker, author of “Talk Your Way Out of Credit Card Debt” and creator of DebtSmart.com.
The advantages in store for you might include:
The power of portals
Most rewards cards have a special online shopping portal through which consumers can earn extra points on certain items. Buying gifts (and gift cards) via these portals is one of the simplest and most effective ways to rack up rewards during the holiday season.
Simply log in to your account and browse offers from various retailers that show how many rewards points you'll earn per dollar spent. Once you click on the item, you'll be routed to the store's website. It'll be there as if you went there directly, only you'll earn extra points on what you buy.
For instance, ShopDiscover, which is available to Discover cardholders, offers between 5 percent and 20 percent in cash-back bonuses at more than 200 online retailers. Between Nov. 7 and Jan. 8, more than 85 of those retailers — including Sears, Toshiba, Macy's and Dell — will increase their cash-back bonus amounts from 5 percent to 10 percent.
According to credit expert Wayne Sanford, the best way to fully maximize the rewards potential of these portals is to purchase a gift card through the portal, earn the points and then turn around and use that gift card for another purchase in the portal to earn even more rewards. Double dipping isn't always permitted, however. Some portals won't give you points for items purchased with gift cards for that very reason.
“Not all credit card companies will allow you to double dip like that, but it's worth a try,” says Sanford. “If you can do it, you're really stretching the power of these portals.”
Sanford also offers a word of caution. Consumers, he says, shouldn't blindly shop through their credit card's portal without first performing price comparisons elsewhere.
“Don't just assume that using the portal makes all of your purchases less expensive,” Sanford says. “Portals can be great, as long as you are careful about price comparison and making sure you are getting the most bang for your buck.”
Rotating spending categories
Most major credit card companies know that certain times of the year lead people to make certain types of purchases. That's why they often offer three-month spending categories that can result in significant cash-back rewards.
For instance, through Dec. 31, Chase Freedom Visa cardholders can earn 5 percent cash back up to $1,500 spent at Amazon.com and select department stores — places you might be shopping anyway for holiday gifts. Similarly, Discover is offering 5 percent cash back on purchases made with the Discover “it” card at various online retailers.
Just don't let the promise of extra points trick you into extra spending.
“These spending categories can be very enticing, but make sure you aren't just spending for the sake of earning rewards, which is an easy trap to fall into,” Bilker says. “Make a holiday spending plan and then use your cards to make that plan happen. Don't let the rewards become your main focus. If it's not spending you're going to do anyway, don't spend anything.”
To entice new customers, issuers often offer extra miles, free hotel stays and even cash.
For instance, the Starwood Preferred Guest card from American Express offers 25,000 points in the Starwood Hotels preferred guest program. The Citi AAdvantage currently offers 30,000 American Airlines miles.
These sign-up bonuses often come with spending requirements, however. The Citi AAdvantage card, for example, requires you to spend $1,000 on the card within three months of getting the card to unlock those bonus miles. What better time of year to reach for a sign-up bonus than the holiday shopping season? If you've just gotten a new rewards card (and put all your holiday gifts on it), you'll put that extra spending to work for you.
While these sign-up bonuses can be enticing (and add value to your holiday shopping) consumers should also proceed with caution, says Eric Rosenberg, finance blogger at Narrow Bridge Finance.
“New credit inquiries can have a negative impact on your credit score. So if you're going to apply for one of these cards in order to take advantage of their sign-up bonuses, make sure your credit score can handle it,” says Rosenberg. “If you've already got a lot of cards and a troubled score, the sign-up bonuses probably aren't worth it.”
In addition to bonuses offered by credit card companies, brick-and-mortar retailers also use the holiday season to entice consumers to sign up for their store credit cards by offering a certain percent off on the initial purchase.
Just make sure you won't be hurting your finances in exchange for a one-time reward, says Stephanie Cohen, partner with LoyaltyOne Consulting, a global consulting firm that helps businesses build customer loyalty.
“If you're going to a store and buying a big item like a flat-screen TV, the savings you get from using the store's card can be significant, in which case there's definitely a value to opening a line of store credit,” says Cohen. “But those cards often have very high interest rates, so you need to make sure you're able to pay off the balance immediately. Otherwise you'll be spending more on interest than you saved.”
Pay with points
Have a cache of unused points you've racked up by swiping your rewards card all year? Cohen says this is one of the best ways to stretch your holiday spending dollar.
“If you have a bunch of unused rewards points, sit down and figure out how to work them into your holiday spending budget,” Cohen says. “Depending on how many points you have to work with, you could actually save yourself a few hundred dollars.”
Here are a few holiday-related expenses you might be able to pay for with points:
Gift cards: Most rewards cards let you redeem points for gift cards, and some offer discounts — a $50 gift card for $40 worth of points or cash back, for example.
Travel and lodging: You might also be able to take some of the bite out of the cost of a trip home. If you have a card that's co-branded with a hotel chain or airline, the holidays (when tickets and lodging are at a premium) can be a good time to redeem points you've been hoarding.
Some cash-back cards also let you transfer rewards to participating travel partners. For instance, Chase allows consumers to transfer points at a 1-to-1 ratio to partners such as British Airways, United and Hyatt.
Other items on your shopping list: Some cards make it easy to redeem rewards at the very retailers you may be frequenting during the holiday season by letting you shop online and pay with points at checkout. Discover, American Express and Chase, for example, let cardholders use rewards points on Amazon.com.
“So instead of shelling out hard-earned money,” Cohen says. “use those hard-earned rewards that have been accumulating over the past year.”