Credit Card Tips to Help Shoppers Celebrate the Holidays Frugally

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Learn the strategies to maximize the money you spend on gifts.

With the right strategy, a credit card can help you maximize every dollar you spend on holiday purchases — and even earn some of them back. But what type of card should you choose?

A store credit card and balance transfer card combo is usually the scenario that offers shoppers the most benefit. The process looks like this: Shoppers sign up for store credit cards, like the Amazon Prime Store Card or Target REDcard, to capitalize on high-rate rewards; usually 5%. Then, they sign up for a balance transfer card to avoid paying interest. (Many store cards don’t offer introductory 0% APR periods. And if they do, it often comes with a minimum spending requirement.)

That’s not a steadfast rule, though. Depending on how much you plan to spend, regular rewards cards like the Chase Sapphire Preferred® Card might deserve a second look.

Here are the most popular holiday retailers and their cards:

Store Card In-Store Rewards Rate Special Financing*
Amazon Prime Store Card 5% 6-, 12-, and 24-month
My Best Buy Credit Card 5% 6- and 18-month
Lowe’s Advantage Card 5% 6-month
Target REDcard 5% None (23.90% APR for purchases)
TJX Rewards Credit Card 10% off your first in-store purchase, then 5% None (27.99% APR for purchases)
Walmart Credit Card 3% None (23.90% APR for purchases)

* Special financing refers to zero-interest promotions or offers that are available to cardholders.

Crunching the numbers

The National Retail Federation surveyed 7,349 shoppers and found that on average, each one planned to spend $967.13 on gifts this year. Let’s take a look at a hypothetical scenario based on that average and compare the value of our two holiday shopping strategies at Target.

Target REDcard vs. Chase Freedom®

The REDcard earns 5% back on most Target purchases, so you’ll earn around $48 in store credit. If you don’t plan to pay your balance in full by the end of the month, you’ll need to conduct a balance transfer to avoid paying interest. (We passionately recommend only spending what you have the ability to pay off immediately.)

The Chase Freedom® earns only 5% on rotating categories, so unless Target is one of them, you’ll only earn 1% on your purchase. But here’s where it gets interesting: If you spend $500 in purchases within the first three months, you’ll earn the $150 signup bonus. Note: You can redeem rewards for cash back and travel, not just store credit.

Summary: You’ll earn $102 more with the Chase Freedom® thanks to its signup bonus, and you’ll have more flexible redemption options too.

A note about rotating categories

Many cash back cards have schedules that outline which purchase categories earn a certain rewards rate. (It’s usually around 5%.) The categories rotate every three months and often require manual activation — you have to log into your card’s portal and activate the rewards category.

Here’s a breakdown of a few top cash back credit cards that earn 5% this quarter:

  • Chase Freedom® – 5% cash back at Walmart and select department stores (not including supercenters, discount stores, or specialty stores) on up to $1,000 in combined purchases through December 2017.
  • Discover it® Cash Back – 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, and more up to the quarterly maximum each time you activate.
  • Citi® Dividend – Earn 5% cash back at Best Buy through December up to $300 in total cash back per calendar year.

Choosing the right strategy for you

A rewards card like the Chase Freedom® isn’t always the most beneficial strategy. Here are the two most important things you should consider as you determine the right credit card strategy for your holiday shopping:

How much will I spend?

This is ultimately the most important question of all. Rewards cards generally won’t match a store card’s high-rate rewards. (Unless the store happens to fall into your card’s rotating category, of course.) So if you’re considering a rewards card, make sure that you will be able to spend enough to earn the signup bonus.

How do I want to spend my rewards?

Most store cards have high-rate rewards, but it’s important to remember that those rewards exist as a store credit. With a rewards card, you will have far more flexible redemption options, like vacation packages, airfare, cash back, and statement credits.

It’s also important to recognize the implications for people who plan to shop at multiple merchants. You might have thought, “Why can’t I open up store cards everywhere I go and consolidate my debt with a balance transfer?” You could, but by spreading out your spend, you also spread out your earnings. Having $10 of store credit at five different locations might not be as useful to you as having $50 in one location.

Paying off a big holiday spend

Here are is the best balance transfer cards for holiday shopping:
Discover it® Balance Transfer
The Discover it® Balance Transfer card has a generous 18-month intro 0% APR period for balance transfers (then ongoing 13.74% - 24.74% Variable APR) and no annual fee. There is a 3% intro balance transfer fee and up to 5% fee on future balance transfers (see terms)*, but its zero-interest period is one of the best out there. On top of that, you can earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, and more up to the quarterly maximum each time you activate.

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