If you plan to open a new credit card, the Thanksgiving and Christmas holiday season might be the best time of the year. This is usually because most households spend a large portion of their disposable income during the holiday season traveling to visit relatives and buying gifts to put underneath the tree.
Charging these expenses to a credit card can help earn additional rewards instead of paying with cash or a debit card. And, pursuing a sign-up bonus that often requires a minimum spending amount will be easier to reach without having to spend more than normal. Opening a card in January, when the Christmas bills need to be paid for, might not be the best idea to maximize card benefits and bonuses because the Holiday blitz has already been completed.
If you are still deciding what type of credit card to apply for you will need to determine what rewards you will benefit from the most. If you have received pre-approved credit card offers in the mail recently, you can probably know just how difficult it can be to choose the best credit card. As not every credit card is identical, here are some of the important “ins and outs” to consider.
Perks and Rewards
The best part about credit cards is the rewards you can enjoy for making purchases and simply owning the card. These are some of the perks to look for and see if they align with your spending habits.
If you have ever paid attention to the advertisements on the outside of the credit card mail offers, more often than not, the language is going to include an enticement of earning a significant amount of bonus points, cash back statement credits, or free hotel nights after spending a minimum amount of money within the first three months.
Depending on the credit card, the bonus can be as simple as earning a $25 statement credit after making a single purchase of any dollar amount or it can be worth at least $1,000. Regardless of the bonus amount, the sign-up bonus has a significantly higher reward rate than the card will yield for any other purchases. As the minimum spending requirements can easily be $1,000 or more to earn the bonus, most households will not have to struggle meeting the minimum during the holidays as they will be spending the money regardless.
Usually, but not always, the best credit cards charge an annual fee. Charging an annual fee allows companies to award additional perks like a $100 travel credit to reimburse checked baggage expenses, airport lounge access, or one free hotel night each year. Consumers use credit cards to earn rewards, but, as most credit cards earn purchase rewards, the additional benefits justify choosing a card that charges an annual fee compared to only going with a no-fee card that only earns purchase rewards.
Waived Annual Fees
In addition to sign-up bonuses, it’s not uncommon for credit card companies to waive the annual fee for the first year as an additional enticement to attract new customers. This can save anywhere from $49 to $95, the most cost common costs for annual fees, for the first year of owning the card.
If you want are planning to travel over Thanksgiving or Christmas, choosing a travel rewards credit cardwill most likely be a better option. You might not be able to redeem the points earned from the sign-up bonus for free plane tickets for this holiday, but your travel purchases can help you meet a sign-up bonus spending requirement and earn purchase reward points to be used for future travel as well. In addition to reward points, you can also enjoy other benefits. A credit card offered by an airline like United or Delta will allow you to check one bag for free, saving you some additional cash with each flight.
Be Sure to Read the “Fine Print”
It can be real easy to look at all the incentives of using a particular credit card and it is also important to read the terms and conditions. Some of the advertisements can be confusing and what appears to be a good card, might not be.
Missed Payment Penalties
Many credit card companies will not offer rewards unless you make the minimum monthly payment. Unfortunately for most credit card users, the minimum payment is often less than the balance due. This means late fees and interest charges. Not earning rewards is the least expensive of your credit card woes if you overextend yourself financially over the holiday season and cannot pay back the bills in January. A little-known fact is that the busiest time for credit counselors are the first months of the new year.
A credit card might advertise the opportunity to earn 5% cash back, but, that is usually only for select spending categories. Travel credit cards offer the highest reward rates for airline ticket purchases or hotel stays but only pay the base reward rate of 1% for all other purchases.
There are several cash back credit cards that also offer 5% cash back on rotating spending categories and typically reward holiday shopping as the 4th quarter bonus. This means you can earn additional cash back at department stores during the final three months of the year when consumers are most likely to use their credit cards for Christmas shopping but only earn 1% on gas purchases. But, this same credit card might reward 5% cash back on gas purchases from January to March. If you are considering a credit card with rotating bonus spending categories, compared to a fixed rate, you should try to choose one that allows you to earn the 5% bonus.
While credit cards will pay bonus rates on most purchases within the designated spending categories, they will not pay the bonus for all purchases. For example, a cash back credit card that pays 5% on department store spending during the 4th quarter often exclude discount stores like Wal-Mart, Target, or Ross and only reward the standard 1% rate for any purchase made at these stores.
Also, if you have co-branded airline card or hotel credit card, you can only earn bonus points when using their brand. If you have a United Airlines Credit Card but fly Delta, you will only earn 1 points instead of 2 points. Any airline or hotel specific credit card will pay for a travel purchase with any travel provider, but, you should not expect to earn bonus points if you do not use one of the authorized travel partners. General travel credit cards might be a better option if you are looking to earn bonus reward points for any type of travel.
In additional to seasonal bonuses, it’s also important to verify if the credit card company caps the bonus rewards after earning so much. For example, the cash back credit cards with the rotating 5% reward rate return to the standard 1% reward rate for all purchases after $1500 has been spent. Another common limit is gas rewards as come credit cards will only pay a bonus rate on the first $150 in gas purchases each month or $7,000 annually before reverting to the 1% reward rate.
Author: Jeff Gitlen
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