Is it time for a holiday credit card swap?
The holidays are perfect to score a big sign-up bonus and rack up rewards
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Savvy shoppers are already stockpiling holiday gifts and prepping for the season of red and green. And while you are spending all of that green in the weeks ahead, a rewards card can pay you a little back or fill your holiday sack with miles and points.
Maybe it’s time for a holiday card swap to rack up rewards on your spending from now through New Year’s Day. Maybe stuffing another rewards card in your stocking (though your wallet would be more practical), would bring in more points, miles or cash back than the cards you are using for your everyday spending now.
Go to "2017 holiday shopping guide"
“Banks are really fighting over customers, trying to come up with richer and more innovative offers,” such as generous sign-up bonuses, says Marc Bellanger, senior strategy director for Merkle, a marketing agency serving the banking and credit card industry.
Most of those sign-up bonuses require cardholders to spend a minimum amount within the first few months. However, between gifts, holiday travel and year-end expenses, the holidays are one time of year that your plastic sees a lot of action. So why not use it to your advantage – and get a nice reward?
Here are five things to keep in mind to execute a successful holiday card swap:
5 tips to a successful holiday card swap
- Look for a flexible card that lets you shop around and with a rewards redemption structure that fits your needs.
- You don’t have to pay an annual fee. Plenty of no-fee cards now offer generous sign-up bonuses and rewards.
- Take advantage of rotating categories. Some cards offer quarterly bonuses especially geared toward holiday expenses.
- Prioritize your new rewards card. Make sure you meet the minimum spend without overspending.
- Don't carry a balance. But if you do, look for balance transfer or 0-percent card offers instead.
1. Look for flexible card rewards.
David Rae recently used card rewards to score two free first-class tickets to Europe – saving $25,000.
But as a certified financial planner, Rae also wants consumers to be smart about rewards.
If you want to turn your points into flights, hotel stays or merchandise, look for a card that allows you to shop around for those items – and doesn’t lock you into one carrier or hotel, says Rae, president and founder of DRM Wealth Management.
One card he likes: Chase Ink Business Preferred, which offers an 80,000-point bonus, and a lot of flexibility in how you can use them.
Also, look for a card with a rewards redemption structure that fits your needs. Some cash back cards, for instance, will set a minimum redemption amount of $25 or will only let you redeem rewards as credit statements, while others will let you redeem cash back for any amount, any time, even as a gift card.
2. You don’t have to pay an annual fee.
While some rewards or cash back cards waive the annual fee for the first year, others don’t have a fee at all. Here are six:
- Chase’s United TravelBank card: A $150 TravelBank cash bonus if you spend $1,000 in three months. You get 2 percent back on United airfares and 1.5 percent on everything else.
- Blue Delta SkyMiles from American Express: A 10,000-mile bonus if you spend $500 within the first three months. You get 2 miles per dollar for restaurants and Delta airfares, plus 1 mile per dollar everywhere else.
- Savor from Capital One: A $150 bonus if you spend $500 within the first three months, plus 3 percent cash back on dining, 2 percent on groceries and 1 percent on everything else.
- Barclaycard Cash Forward: A $200 bonus if you spend $1,000 within the first three months. Plus 1.5 percent cash back on everything.
- Citi Double Cash: With 1 percent cash back on everything you buy, and another 1 percent back on every dollar you pay off, it’s “a good card for folks who pay off everything,” says Bellanger. With no bonus and a slightly higher rewards rate, this one is for spenders “who take the long view,” he says.
- The AARP Rewards Card from Chase: A $200 bonus if you spend $500 in the first three months. Plus 3 percent cash back on dining and fuel, with 1 percent on everything else.
If your credit card waives the annual fee for the first year but won’t for the second, you can also switch cards.
“I, myself, switch cards every year,” says Michelle Madhok, publisher of the shopping site SheFinds.com. She sets a calendar reminder to cancel the old card – and gets those new-card bonuses without paying an annual fee.
3. Take advantage of rotating categories.
While some cards reward you with the same rewards rate year-round, others give bonus points on rotating categories that might come in especially handy around the holidays.
Rae delayed one purchase a couple of days because, starting October 1, the item would earn 5 percent rewards, instead of 1 percent. “I’m cognizant of those deadlines,” he says.
Chase Freedom, for example, will give 5 percent cash back for a total of up to $1,500 in purchases at select department stores and Walmart from October through December. During that same quater, Discover it Cash Rewards will give 5 percent cash back on up to $1,500 in purchases made at Amazon and Target.
The other deadline to remember: The one on the minimum spending threshold for that sign-up bonus.
If that date is approaching and you’re just a few dollars short? Pick up gift cards for the grocery store or other places you frequently shop, says Rae.
Or you can pay bills (like your cellphone, insurance or utilities), in advance, says Madhok. But first make sure providers don’t charge “convenience fees” for using a credit card. Often a percentage of the transaction, those can negate any value you make in points.
And never put more on the card than you can repay in one month.
Even rewards “are not worth having credit card debt,” says Rae. “The points are nice, and they can be very valuable. But credit card debt is very expensive.”
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4. Prioritize the new rewards card.
If you want to accrue rewards without additional spending, the trick is to substitute the card for places you might be using cash, debit cards or checks.
That could mean everything from gas to groceries to utilities. “Put it in your wallet and use it for your regular spending,” says Rae, who also sets up the new rewards card to autopay many bills.
One challenge with this approach: When you use cash and debit cards, the money is gone from your account the minute you spend it. With credit, you have the illusion of still having money that you’ve actually spent, especially during the holidays, when expenses can quickly pile up. This could be problematic when you go to pay the bill.
Keep track of your card balance as you buy (via a phone app or small notebook). And earmark that amount to pay off your card balance. That way, no ugly surprises when that bill arrives. And most cards allows you (check with the issuer) to make payments several times a month.
Before you select a rewards card, make sure the spending threshold required for any bonus is realistic for you.
While spending $500 within three months would be fairly easy for anyone with a gas tank and a refrigerator, spending $4,000 within the same time period won’t suit everyone’s budget. And it could easily lead to overspending on holiday gifts and other seasonal expenses.
“Look at your past spending to see what your trend is on your existing card,” says Bellanger. Is the bonus requirement a comfortable goal?
5. Rewards are for cardholders who don’t carry a balance.
Card APRs average 16.24 percent on rewards cards and 16.4 percent on cash back cards, according to CreditCards.com’s most recent interest rate report. Which means paying a month of interest pretty much guts the value of any rewards you accrue. Paying more in interest than you’re earning in rewards is a losing proposition.
If you carry a balance or expect to in the next few months, a better move might be to “find a nice 18-month or longer 0-percent balance transfer offer,” says Bellanger. “You’ll save money over the long term.”
After all, you don’t want to spend the new year digging out of credit card debt you piled up buying all the fixings for your family Thanksgiving dinner, charging a sleigh full of gifts for friends and family and jetting off to New York City to see the Rockettes’ Radio City Christmas Spectacular.
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