Holiday Shopping: Using a Rewards Credit Card

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

If you’re like most American consumers, you have gifts to buy, food products to pick up, and miscellaneous extra expenses as you attend holiday parties and host family members.

To make the most out of this experience, you might be interested in using a rewards credit card, but how exactly does this work, and what are the pros and cons of this strategy?

How Rewards Credit Cards Work

For the most part, rewards cards work like normal credit cards; you can “charge” the credit card to fund a purchase, incurring a debt that you’ll pay off at some point in the future. This debt will accumulate interest until you pay off the principal; you may also be on the hook for other fees in some situations.

Rewards credit cards attempt to incentivize consumers to use their cards regularly. For each qualifying purchase, you make with one of these cards, you’ll make incremental progress toward some type of reward. Depending on the card and the offer, this could lead you to earn cash back, travel miles, or some other tangible reward.

If you’re going to spend $1,000 on holiday gifts this season, a rewards credit card could help you accumulate significant rewards from those purchases.

Important Tips for Using a Rewards Credit Card While Holiday Shopping

Using a rewards credit card for your holiday shopping could be advantageous. However, to get the most out of this system, it’s important to follow these tips:

1. Shop for the Right Card

Use a platform like Compare Credit to evaluate different rewards credit card offers and choose the offer that’s best for you. There are several variables to consider. For example, the annual interest rate has a massive impact on how quickly you accumulate interest. 

Some cards have annual fees that may eat into your rewards. Some credit cards offer a fixed reward point system, while others have a “tiered” system that gives you more points for certain types of purchases. There might also be caps for certain types of rewards. Look at all the variables closely before making your decision.

2. Don’t Sign up for Too Many Cards

If you have multiple offers that look interesting, you might be tempted to sign up for all of them, but having too many open accounts could hurt your credit score, ultimately worsening your financial position. Aim to have one or two rewards credit cards at most.

3. Pay Attention to Your Interest Rate

The interest rate is arguably the most important variable to consider when shopping for a credit card. Credit cards typically have very high-interest rates, rendering you vulnerable to excessive debt accumulation; the power of compound interest could lead you to owe far more than the original cost of the items you purchased.

4. Set a Budget (and Stick to It)

Your rewards credit card could lull you into a false sense of security, incentivizing you to spend more than you would with cash or a debit card. Don’t fall into this trap. Before you spend a single dollar with your rewards credit card, set a budget for yourself, and be prepared to stick to it. 

5. Try to Maximize Your Rewards

If possible, try to maximize the rewards you earn. For example, if you earn double points on purchases at certain stores, try to do some holiday shopping at those stores. Just don’t put yourself in a worse financial position to accomplish this; for example, don’t double your holiday spending budget just so you can get a better reward at the end of it.

6. Make a Plan to Pay off Your Card Quickly

Rewards credit cards tend to be useful only when consistently paid off; otherwise, the rapidly generating compound interest will quickly offset any rewards you might have earned. Set an automatic reminder so you don’t forget to pay your bill.

7. Keep Security in Mind

Finally, keep security in mind when using your credit card. Be wary when giving out your credit card number and retain possession of your card at all times. Use strong passwords for your credit card-related accounts and keep your information private.

Holiday Shopping: The Bottom Line

Rewards credit cards can be a valuable way to spend less (or earn a little bonus for yourself) when holiday shopping, but that shouldn’t be an excuse to go crazy with your spending. Choose the right card, consider your purchases carefully, and make sure you’re able to pay off your balance in full. 

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