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There’s no doubt that the holidays are the peak time of year for consumer spending — and the credit card industry loves to leverage this increased spending in just two ways: sign up for store cards when you make a purchase or bite on a promotional financing offer early next year as you try to get out of debt.
Neither of these strategies are necessarily good for consumers. Instead, you should consider a new credit card for one of these reasons.
Holiday spending is a great time to earn a sign-up bonus
It’s always nice to contemplate earning a bonus worth hundreds, or even over a thousand dollars worth of points or miles. But with nearly all of these offers, you have to complete a minimum spending requirement that can be daunting. For example, the Chase Sapphire Preferred offers new customers 60,000 Ultimate Rewards points as a sign-up bonus, but only after spending $4,000 within three months of account opening. If that’s outside your normal budget, then you could consider getting the card before your holiday spending, which could go a long way towards earning those valuable points. But take note: This card features a $95 annual fee.
Likewise, the Citi Premier is also offering new applicants 60,000 ThankYou points after spending $4,000 within three months of account opening, and the Capital One Savor features $300 in cash back after spending $3,000 within the same time period. (Both of these cards, too, feature a $95 annual fee; the Savor's doesn't kick in until after the first year.)
Store cards aren’t usually the best option
It can seem like nearly every store you shop at will ask you to apply for its co-branded credit card each time you make a purchase. Most often, these offers will include a discount on your purchases that day, as well as rewards for future spending. And while these offers can appear attractive, they are usually far less competitive than a typical credit card.
First, you have to realize that the discounts offered will rarely equal the value of most sign-up bonuses. For example, even a 20% discount on a $1,000 purchase will still only amount to $200, less than the previously mentioned offer for the Capital One Savor card, and far less than the value of 60,000 Chase Ultimate Rewards or Citi ThankYou points.
Also, these offers could come with some sort of promotional financing, but it’s usually valid for far less time than most credit card’s promotional financing offers. And of course, many store cards such as Kohls, the Gap, and Macy's, can only be used for in-store purchases, as opposed to a normal Visa or Mastercard. Finally, store credit cards typically have much higher standard interest rates than other cards — for example, Macy's APR is currently around 26%.
Interest-free financing vs. a balance transfer offer
Another reason to look for a new credit card before or during the holidays is for promotional financing. While you can expect to see a lot of advertising for balance transfer offers after the holidays, these cards may not represent the best strategy for most consumers. That’s because nearly all of these offers impose a balance transfer fee of 3% or even 5% of the amount transferred, which can add significantly to your debt.
Instead, you might consider opening up a card with a 0% APR promotional financing offer for new purchases, which won’t have any fee attached to it. If you know that you won’t be able to pay off some of your holiday purchases, these offers can provide you with 15 months to pay your balance off before the standard interest rate applies.
Right now, the no-annual fee Chase Freedom offers 15 months of 0% APR financing on both new purchases and balance transfers. The balance transfer fee is 3% for the first 60 days, but rises to 5% after that. But if you take advantage of the interest-free financing on new purchases, then you won’t be charged any fee.
It’s not too late to apply for a credit card, and use it today
If you think it's too late to sign up for a new credit card and use it before Cyber Monday, think again. Several credit card issuers, including American Express and some Barclays cards will now provide you with account numbers online immediately after approval.
A note of caution
Many people who sign up for offers like these use them to earn rewards and save money on interest charges, but not everyone. If you end up spending more than you normally would in order to earn a sign-up bonus, then you aren’t coming out ahead. And if having an interest free promotional financing offer for new purchases will encourage you to spend more than normal, than that isn’t a wise strategy either.
When you’re able to use your credit card simply as an alternative method of payment, then these offers can be extremely valuable. Otherwise, it can be best to use other forms of payment such as debit cards or even cash.
The Bottom line
If you’ve budgeted additional spending during the holidays, and can responsibly manage your credit cards, then this could be a great time to sign up for a new offer. The right credit card can feature generous rewards for spending, a valuable promotional financing offer, or both. By making strategic use of your credit cards during the holidays, you can best leverage these offers for your benefit.