Now that the holiday shopping season has arrived, you may be stressing about how much money you'll be spending over the next month or so. Between the gifts you buy and the cost of holiday traveling, many American households will be spending well into the thousands.
However, maybe there is a silver lining here. With credit cards like these, maybe you can give yourself some pretty nice gifts this holiday season.
The point of using credit cards for holiday shopping
First of all, when I'm discussing credit card use in this article, I'm assuming that you aren't going to run up a balance and carry it over a long period of time.
Even the best rewards you can possibly hope to receive from a credit card are in the 5% range. It's essential not to forget that if you carry a balance and pay a high interest rate of say, 18%, the rewards are no longer worth it. If you want to carry a balance, there is another strategy to use, which I'll get into a little later.
To truly take advantage of reward cards, you should be using them only for purchases you were going to make anyway, ones you can afford to pay off at the end of the month.
The concept of a credit card that rewards customers with frequent flyer miles or hotel points isn't exactly new, but with the increased competition between card issuers, it can be more lucrative than ever.
Two things you need to consider when looking for a credit card with travel rewards are the annual fee and the spending threshold connected to the welcome offer.
For example, the Barclays Barclaycard Arrival Plus World Elite MasterCard offers a sign up bonus of 40,000 miles if you spend $3,000 within the first 90 days of opening the account. And, the $89 annual fee is waived for the first year. However, if you don't plan on spending $3,000 in such a short period of time, the welcome offer isn't very meaningful to you.
On the other hand, the Virgin America Visa Signature Card offers 10,000 bonus reward points after just $1,000 in spending, and has just a $49 annual fee. So, on $1,000 worth of holiday shopping, you can get bonus points worth up to $200. That's a 20% rate of return, not including the points you would normally get for those purchases.
So, if travel rewards are your thing, check out the options available to you. Many airlines and hotel brands offer several "levels" of cards, such as American Express' Delta-branded cards, which come in three levels.
Cash is king
While savvy consumers can usually get a higher reward rate by accumulating travel rewards, some people just prefer to receive cash in their hand. And, there are a bunch of cards that can do just that.
Unlike travel reward cards, most cash back cards don't have an annual fee. And many have other nice perks, such as a 0% introductory APR, as well as lower spending thresholds to take advantage of introductory offers.
One good example is Discover Financial Services' Discover It card, which is offering a $150 cash back bonus after spending just $750 within three months. And, the card offers cash back of up to 5% on some purchases and has no annual fee.
Or, the Capital One Quicksilver Cash Rewards Card offers a 1.5% reward rate on all purchases, and is currently offering a $100 sign up bonus after spending $500 within the first three months.
What if you want to carry a balance?
If you want to finance your holiday expenses over a period of several months, it's not necessarily a bad idea to do so. However, when you do this the focus shifts away from accumulating rewards and toward avoiding interest charges.
Fortunately, there are many cards available with no annual fee and pretty generous introductory periods with 0% APR.
Just to name a few, the BankAmericard Visa, JPMorgan Chase's Chase Slate, and US Bank Visa Platinum all offer a 0% introductory APR for 15 months. So, you could open the account now, charge your holiday expenses, and not pay a penny in interest as long as you pay the balance in full by March 2016.
Which to choose?
This is by no means an exhaustive list, and there might be plenty of other credit cards that meet your needs even better than these.
The point here is that with whichever card you end up choosing, with some good strategy you could end up with some pretty nice gifts to reward yourself for your generosity this holiday season.
Matthew Frankel owns shares of Bank of America. The Motley Fool recommends American Express, Bank of America, MasterCard, and Visa and owns shares of Bank of America, Capital One Financial, Discover Financial Services, JPMorgan Chase, MasterCard, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.