Do you have a big Christmas gift list this year, and are wondering how to cover it financially? Well, this holiday season might be an ideal time to cash out your credit card rewards, if you have some. Many credit cards out there offer cash back of 2%, 3%, even up to 6% on select categories of purchases. Have you been using one of these lucrative cards?
If you want to curb your holiday spending without going all Scrooge on family and friends, it’s time to check that balance. Also check to see if your card partners with any retail stores that offer additional savings if you spend your reward balance with them. Combining this with sale prices can go a long way toward whittling down your gift list without spending a dime of real money.
If you don’t already have a card with cash back rewards, it’s a little late to start for this Christmas, but not impossible. Some cards offer sign up bonuses that start you off with a significant boost to your cash back rewards balance. And with potentially one monthly statement between now and the biggest holiday of the year, depending upon the card terms it’s possible you’d have time to cash in, even if your balance won’t be significant yet.
Make sure to pay attention to the fine print – some cards won’t deposit that big rewards bonus until a few months down the line, and condition it on you spending a certain amount of money on your card.
On the flip side, there’s plenty of time to save up for the 2017 holidays, and now is a great time to open a new credit card account! More credit cards are opened at this time of year than any other, and it’s no surprise why. The average American will spend close to a thousand dollars just on gifts, and many will open credit accounts to finance this spending. Look for holiday specials on opening a card, but you’ll also want to find the right card for you, based upon your spending habits.
How to Find the Right Card
The first step is to assess your own spending habits. Try to determine what your two or three biggest spending categories are. For most people, groceries and gas will be the largest expenses. If you travel a lot, though, you might spend significantly on other categories such as plane tickets and restaurants. If you shop at a particular store all of the time, or have unusual spending habits, you’ll want to look for a store credit card that complements these habits.
Once you know your spending habits by category, it’s time to compare cash back rewards offers. You could sign up for the credit card that offers the most cash back in the category you spend the most in, but that analysis is actually too simplified. To really get the most bang for your buck you’ll have to do a little math, since many cards will offer rewards in multiple categories at multiple percentages.
For instance, if your two biggest spending categories are groceries and gas, you may get more rewards by signing up for a card that offers 3% back on groceries and 2% back on gas than a card that offers only 4% back on groceries. Yes, the second card offers more in your largest spending category, but it offers none on gas, your second largest. Look for the card that will give you the most back overall.
If you travel and your workplace reimburses you for some or all of your travel-related expenses, it makes a whole lot of sense to get a card with cash back rewards in these categories. Now you’re getting cash back on things you’re already reimbursed for – cha-ching!
For travelers, it sometimes is handy to have a separate card that’s only used for travel-related items and which offers great rewards in the categories of plane tickets and restaurants. Having a separate card for reimbursable expenses will also help you itemize which items were work-related versus which items were not.
How to Get the Most from Cash Back Rewards
The first thing you’ll want to do is pay off your balance in full each month. If you keep a running balance, you’ll have to pay interest on it, and even at competitive interest rates this will easily cut into or completely undo the benefits of cash back rewards. Look for your monthly statement in the mail and pay it the day it arrives, or as soon thereafter as you can.
Better yet, you can set up your bank account and credit card account to automatically pay your balance in full each month before the due date. Just make sure you’ll have enough in your linked bank account – overdraft fees are another danger that could potentially eat into your rewards.
Cash in Your Rewards Around November
November will be the best time of year to cash in those rewards, just as holiday spending ramps up and sales are springing up everywhere. If it’s too late to get a jump on this Christmas, start planning and shopping for a rewards card right away and by next Christmas you might be checking every gift off your list to the tune of $0!
Author: Jeff Gitlen
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