As Americans gear up for festive celebrations and, of course, gift-giving, nearly one in five say they’ll apply for a new credit card to help out with holiday shopping.1 But while this might be a strategic move for some, it can be a debt trap for others. This is especially true when it comes to high-rate rewards credit cards.
It makes sense why credit card companies and financial institutions often roll out their most enticing rewards programs at the end of the year. For those gearing up for their holiday shopping sprees, finding a card with good rewards can mean savings down the road. And for consumers who’ve already accumulated points throughout the year, it's the perfect time to save money by putting them to good use. However, the key to a successful strategy lies in your ability to promptly settle the owing balance on your card.
It's worth noting that credit cards with rewards programs often come with higher interest rates compared to their basic, non-rewards counterparts. At the end of November, the national average for credit card interest rates stood at a hefty 27.81% APR 2 (compare to Cyprus CU's current Visa rates). You can ideally avoid interest by paying off your balance within a month. But if that isn’t quite possible, focus on paying off the balance as soon as you can. You may even consider a balance transfer to a lower-rate card.
The moral here is that if you want to earn rewards points by spending with a high-rate card, you should also have a plan for paying off the balance in a timely manner. Otherwise, you could be paying for the holidays long after they’ve come and gone. In fact, about 1 in 4 American consumers still find themselves grappling with debt from last year’s holiday season.3
Opening a new credit card during the holidays can indeed be a strategic move if your credit is in good standing, your spending is well-monitored, and you're confident in your ability to clear the balance reasonably quickly. If not, it’s okay to skip the new card and work with what you already have. It can be just as wise of a strategy to spend with a debit card or a lower-rate credit card without rewards points.
Regardless of whether you spend with a rewards credit card, a low-rate card, a debit card, or even cash, it’s a good idea to set a budget for your holiday spending and stick to it. And if you’re aiming to spend less than you did last year, you’re in good company. 28% of American consumers say they plan to scale back on their holiday expenses in 2023.4
This year, try to make it the focus of your holidays to connect with those around you without accumulating lingering debt. Finding a balance between generosity and financial responsibility can help your holidays be both merry and debt free.
1, 3, 4 WalletHub Holiday Shopping Survey (November 9, 2023)
2 Forbes Advisor’s weekly credit card rates report (November 27, 2023)