Holiday Credit Card Dos and Don'ts

Don’t start the new year regretting a holiday credit binge.

A dad helps his kids pick out a Christmas tree.
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 Thomas Barwick / Getty Images

The holiday shopping season officially kicked off on Black Friday. This year, it's estimated that the average American will spend $998 on holiday shopping, including gifts, food, decorations, and other purchases throughout the season. While some shoppers plan to pay with cash, 30% of consumers say they'll use credit cards to cover at least some of their holiday spending.  

Using a credit card over the holidays can make it easier to shop online, and you could earn some valuable rewards on purchases. But it's important to get familiar with holiday credit-card dos and don'ts before filling up your shopping cart. 

Making the most of your credit cards over the holiday shopping season means knowing the smartest ways to use them. Keep these good practices in mind as you map out your shopping strategy. 

Set a Budget for Holiday Credit Card Spending

Going over your holiday budget could lead to a pile of post-holiday credit card debt if you aren't careful. When creating a budget, write out who you’re buying gifts for, what you want to buy them, how much those gifts will cost. Consider which purchases you'll charge and which ones you might pay cash for. 

It can also help to break it down by category. For example, of the $998 consumers plan to spend on average this year, $650 of that will go toward gifts, while $230 will go toward decorations and food. The remaining $117 will be spent on other holiday purchases. Breaking your budget into categories this way can make it easier to match your holiday purchases with the right rewards credit card.

Consider linking your credit cards to a budgeting app to easily track holiday purchases in one place. 

Pay off your purchases as soon as possible. A lingering balance will cost you interest payments every month unless your purchases were part of a 0% APR promotion.

Understand the Rewards Program

Rewards credit cards can offer an incentive to spend, especially over the holidays if you're shopping more frequently. But it's important to understand how your card's rewards program works. 

For example, you should be aware of:

  • Which purchases earn rewards
  • What type of rewards you can earn (i.e., cashback, miles, or points)
  • How many points, miles, or cash-back rewards you can earn per $1 spent
  • How much your points or miles are worth
  • If there are spending limits on rewards earnings
  • Your options for redeeming rewards earned

Whether it makes sense to use one credit card or multiple cards for holiday shopping can hinge on the types of purchases you plan to make and the kind of rewards you'd like to earn. If you don't have any travel plans on the horizon for the new year, for instance, it might make sense to stick with a card that offers cashback on purchases instead of miles or points you have to use for travel. Or, if you have a card that offers bonus rewards for online shopping, that could be your card of choice for gift purchases. 

Pay attention to other card features and benefits, such as introductory bonuses and annual fees. 

Lower Your Interest Rate

If you don't think you'll be able to pay your holiday purchases off in full, you’ll end up paying interest on your balance. According to The Balance's research, the average interest rate across all credit cards was 20.24% in November. However, there are a few things you can do to curb interest charges.

You could reach out to your credit card company to ask for an APR reduction. Your issuer might be willing to agree to this if you've consistently been a good customer.

Another option for a low-interest rate would be opening a new credit card with a 0% introductory APR for purchases or transferring your holiday-spending balance to a card with a 0% APR after the holidays. Either move could help you save money on interest charges as long as you pay the balance off before your promotional rate expires.

If you're considering a 0% balance transfer offer, look for a card that doesn’t charge a balance transfer fee. This could save you as much as $50, based on average holiday spending and balance transfer fee figures.

Shop Safely and Monitor Your Accounts

Credit card fraud can happen at any time, but it can be especially pervasive during the holidays when Americans are swiping their credit and debit cards or shopping online more often. The coronavirus pandemic has also triggered an uptick in fraud. According to an Experian survey, the number of Americans who say they've experienced holiday fraud doubled in 2020.

“This year is even more attractive for hackers so consumers need to make sure they are following several good security practices to keep their information and financial accounts safe. Retailers should also be very vigilant so that shoppers have a positive customer experience,” Experian Vice President of Consumer Protection Michael Bruemmer said in a press release about the survey.

If you plan to use credit for shopping in-store or online this year, here are a few things you can do to stay safe:

  • Consider linking your cards to a secure mobile payment app, like Apple Pay or Google Wallet
  • When shopping online, stick to secure websites (URLs with “https:” instead of “http:”) and always check for an SSL security certificate. 
  • Avoid using your credit card to make online purchases via public Wi-Fi networks.
  • Use caution when making credit card purchases from third-parties through Amazon, eBay, or similar sites. Verify the seller's information before handing over your credit card details.
  • Set up account alerts to notify you of suspicious purchases and check your statements regularly for signs of potential fraud. 

Consider signing up for free credit monitoring services to monitor security for credit accounts over the holidays and all year long. 

The list of holiday credit card don'ts includes some things you may already know. But here's a reminder of how you can avoid ending up on the holiday shopping naughty list. 

Don't Chase Discounts With Store Cards

Opening a retail store credit card to shop over the holidays could be tempting if you're able to get a discount on your first purchase. But those cards may not be the best option for spending if you're paying a steep interest rate. 

Some of these cards can easily have APRs over 25% or more, which is higher than the rates you’d find from the average cash-back credit card. If you're carrying a balance on a store card, the interest you pay could exceed the value of any discounts you received. 

Some retail store cards limit you to making purchases only at selected stores or brands. 

Skip Impulse Purchases

Impulse buys can quickly run up your holiday credit card spending total. Giving in to impulse purchases is dangerous if you want to stick to your budget. 

A simple trick to avoid impulse buys is to impose a 24-hour rule before using your card to pay. If you find something you want to buy that’s not in your holiday budget, wait 24 hours and then revisit the item. This can give you enough time to reflect and decide whether the purchase is worth making.

Don't Max Out Your Credit Cards

Maxing out cards over the holidays could damage your credit scores because it increases your credit utilization. “Credit utilization” refers to the percentage of your available credit that you're using at any given time.

Keeping your balances low relative to your card limits can work in your favor if you're trying to maintain good credit over the holiday season. Credit utilization is the second most important factor in your FICO credit score. To keep tabs on your utilization, set up spending alerts for each of your cards to notify you when your balance exceeds a certain limit. This can help you avoid overcharging your cards. 

Key Takeaways

Observing these holiday credit card dos and don'ts can make for a less stressful shopping season. To wrap up, here are the most important things to keep in mind when shopping this year:

  • Pay close attention to how much you're spending on individual credit cards and altogether. 
  • Match purchases to the right credit-card rewards program to maximize the rewards you earn. 
  • Protect your card information and details when shopping online or in-store. 
  • Be sure to have a plan for paying off credit card purchases after the holidays to minimize interest charges.