How to save money on holiday shopping

The 2021 holiday season is unlike any we’ve seen before. With so much talk about supply chain disruptions, more than half of holiday shoppers planned to begin prior to Nov. 1. On a related note, inflation is running hotter than it has in decades. This year, the challenge is two-fold: actually getting your hands on your desired gifts before the big day, plus finding ways to afford them without busting your budget. Here are some tips.

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Take advantage of credit card rewards

There are three aspects to this: ensuring you get cash back or travel rewards on everything you buy, of course, but also a couple other things you may not have thought about.

Some cards that are particularly well suited for holiday shopping include the Amazon Prime Rewards Visa Signature Card (which gives 5% cash back at Amazon.com, among other benefits), the Chase Freedom Flex (5% cash back at PayPal and Walmart from Oct. 1 through Dec. 31 on up to $1,500 in purchases, activation required, then 1% cash back after that) and the Discover it® Cash Back Card (5% cash back at Amazon.com, Target.com and Walmart.com during Q4 2021, also up to $1,500 in purchases after activation, with 1% cash back beyond that).

The holidays can be a great time to sign up for a new credit card, too. The competition is intense right now, with card issuers dangling particularly generous sign-up bonuses that are sometimes worth $1,000 or more. The best deals require new cardholders to spend anywhere from a few hundred to a few thousand dollars within their first few months. Since most people’s spending spikes around the holidays, this can be an ideal time to hit the threshold with money you would have spent anyway. Just be careful not to overdo it. And be sure to pay in full to avoid interest, since the average credit card charges a hefty 16.13%.

Another way to use credit cards to save money on holiday shopping is to cash in some rewards, perhaps for cash back or gift cards. It pains me to report that almost a third of rewards credit cardholders didn’t redeem any of their rewards in 2020. This is free money, people! Sometimes it makes sense to save travel points or miles for an upcoming trip, but cash back won’t get more valuable over time, so if you’re sitting on a stockpile of rewards, consider cashing in to lower your holiday bills.

Do your online shopping through a portal

To get the best deal, never go directly to a retailer’s website. Instead, click through an online shopping portal. There are tons of these. Rakuten is a popular general-purpose option, Shop Through Chase is great for Chase credit cardholders and American Airlines flyers might prefer the AAdvantage eShopping Mall.

Basically, all you need to do is log into one of these platforms and then use their link to connect to a retailer’s website. It’s quick and easy. The general premise is affiliate marketing. Retailers pay referral fees to these platforms when they bring in customers. It’s targeted advertising, basically, and it means free money for consumers.

Rakuten, for instance, is currently giving 10% cash back at Macys.com, OmahaSteaks.com and ShopDisney.com (among others). Even better, this promotion is stackable with other money-saving tactics such as rewards credit cards and store coupon codes (consider using browser extensions to find those).

Another good tactic: Card-linked offers

Card-linked offers, which are better known by brand names such as Amex Offers and Chase Offers, are worth incorporating into your holiday shopping strategy as well. Log into your account and select the relevant options. When you pay with the affiliated card, you’ll get money back.

They’re basically digital coupons. Sometimes the deals are available in person and sometimes they’re online-only. My current list of Amex Offers includes $20 off a Lululemon purchase of $100 or more and $10 back when I spend $50 or more at Under Armour. Again, stack with other discounting strategies for maximum effect.

Buyer protections

Going beyond upfront discounts, it’s important to consider which credit cards have the best extended warranty and purchase protection benefits. Last year, purchase protection helped me avoid a $299 Apple Watch repair fee. And while most credit cards no longer reimburse cardholders when the price drops soon after they buy something, many retailers (including Target and Best Buy) still have price-matching programs of their own.

Buy now, pay later

Companies such as Affirm and Afterpay that provide installment financing tied to specific purchases have been growing like crazy. (Affirm is a publicly traded company with a market cap of over $30 billion, and Afterpay was recently acquired by Square for $29 billion.) A big part of the appeal is predictable, easy-to-obtain financing. Four interest-free payments over six weeks is a common arrangement. Sometimes these plans stretch on for longer, with or without interest.

American Express, which offers a similar service known as “Pay It Plan It,” reports that 21% of U.S. adults are interested in using buy now, pay later services for their holiday shopping this year. Young adults are the most enthusiastic, with 59% of millennials and 48% of Gen Zers responding favorably. Amex is waiving plan fees for many cardholders who sign up for a plan between Nov. 1 through Dec. 31, potentially allowing them to avoid interest or fees for up to two years.

It’s important to examine your individual buy now, pay later terms, since these can vary considerably depending on the provider, the merchant and your creditworthiness. In some cases, these plans can be useful ways to lessen the impact of large purchases, but it’s important to acknowledge that this is debt that must be paid back. Don’t use it as a gateway to overspending.

Interest-free credit card promotions

A similar caveat applies here: Some 0% credit card promotions are extremely valuable, but these don’t work out as well if you end up just kicking the can down the road.

If you have credit card debt, a 0% balance transfer credit card could save you hundreds or thousands of dollars in interest if you’re disciplined about paying it back within the allotted timeframe. The longest offers currently on the market are for 21 months without interest.

They include the Citi® Diamond Preferred® Card (which has a regular variable APR ranging from 13.74% to 23.74% and a balance transfer fee of $5 or 5%, whichever is greater), the Citi Simplicity® Card (regular variable APR: 14.74% to 24.74%, balance transfer fee: $5 or 5%, whichever is greater) and the Wells Fargo Reflect℠ Card (regular variable APR: 12.99% to 24.99%, transfer fee: the greater of $5 or 3% within 120 days of opening the account then the greater of $5 or 5% after that). Note that the Reflect’s 0% term is technically 18 months, but if you make all of your payments on time, you can get up to three additional months without owing interest.

Signing up for a 0% balance transfer card can be a useful way to save money while paying down your existing debt. For those looking to spread out the impact of current and future purchases, 0% introductory APR cards are worth considering. The Reflect Card, for example, doesn’t charge interest on new purchases for 18 months (which can also be extended up to three additional months if all payments are made on time). The Citi Diamond Preferred and Citi Simplicity have 12-month 0% introductory APR periods.

Be especially wary of deferred interest promotions, which are common among store-branded credit cards. If you fail to pay the entire amount by the time the clock expires, you’ll be retroactively charged for all of the interest that would have accumulated. If it’s deferred interest, what looks like a 12-month interest-free promotion really means that if you owe anything at the end of the term (even if it’s just $1), they’ll go back and apply interest to your average daily balance throughout the entire timeframe.

Most bank-branded cards (like the three I’ve mentioned in this section) do not charge deferred interest. If you still have a balance when the 0% term runs out, you’ll be charged interest moving forward, but only on that amount – not on your average daily balance all the way back to the beginning.

Bottom line

If you bought something that normally costs $100 on sale for $50, did you save $50 or spend $50?

The obvious answer, of course, is both. But the real point is: Did you need to buy that item?

Don’t get me wrong. It’s important to spend money on things and experiences that we enjoy. And we’re all especially deserving of a happy holiday season after dealing with COVID for nearly two years. But I also feel it’s important to point out that the best holiday memories often don’t come from the mall or an e-commerce site.

Do you really remember what your friends and family gave you for the holidays last year? Or what you gave them? Is it worth taking on expensive debt so that you’re still paying off your 2021 holiday bills a year from now?

I’ll close by urging all of us to find ways to enjoy what really matters this holiday season: Quality time with our loved ones. Giving gifts is totally fine, but please don’t run up a big credit card bill in the process. If the latest and greatest consumer goods aren’t in your budget this year, perhaps consider giving something homemade, something you acquired secondhand or an experience. Maybe even something intangible like offering to watch your sister’s kids so she and her husband can go out on a date night.

It may be cheesy, but there’s a reason people say things like “it’s the thought that counts” and “your presence is the present.” Happy holidays!

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.