Looking at a new flat screen as a holiday gift to yourself this year? Planning a stocking stuffer-buying bonanza? It might sound too much like a scam to say it, but if you plan wisely right now, you could make money while Black Friday shopping. The only trick is crafty credit card management — a few simple steps could add $150 to $500 to your holiday budget for free. You get this through a combination of sign-up bonuses (which range from $100 to the equivalent of a round-trip air ticket) and cash back rewards. With money still tight everywhere, an extra couple of hundred dollars is welcome respite.
The first order of business? Figuring out in advance how much you plan on spending and what you want to buy, as your steps will be different depending on where you're focusing your retail dollars. The average American planned to spend $688.87 on this year's holiday shopping, according to estimates from the National Retail Federation. But also figure in how much spending you'll be doing in general on non-gift items during October, November and December for your overall credit card needs.
You don't have to know exactly what you want to buy at this stage, says Tim Chen, CEO of credit-card rater NerdWallet, which helps steer people toward the credit card that best suits their needs. It's more about defining categories — toys, books, electronics, clothing, travel and other areas. There are cards from specific merchants that offer extra bonus points, but Chen says that sometimes, more general cards that gear rewards toward specific areas offer better deals.
"There's a card that's even better than getting an Amazon.com card for shopping on that site — the Citi Forward card," he says. "It gives 5% cash back on purchases at book stores, and categorizes Amazon as a book store. Amazon's card only gives 3% back on purchases to the site."
The next step is to assess your wallet. What's in there? There's a lot of prevailing wisdom out there on credit card management — how many cards to have, how cards affect your credit score and so forth — but one thing is clear: The best thing you can do for your credit score and your financial well-being is to pay off your balances each month. You don't want to simply add extra cards and then cancel them. You certainly don't want to add cards to get cash back bonuses on money you can't afford to spend. You also don't want to ditch any cards you've had for a long time and have always paid off each month to make room for new ones. "You've got to have a few that you just hold forever," says Chen.
If you do have room for a more, though, now's the time to sign up so you can get them in your wallet before you start shopping. Chen and his team at NerdWallet have identified a couple of great money-makers:
The top pick is the Discover More card, which has a $100 sign-up bonus. The card comes with no annual fee and 5% cash back on a rotating series of categories per quarter, like department stores during the holiday shopping period, and 1% on everything else.
This card is not for the passive or the big spender, however. You have to opt-in each quarter to the 5% rewards, and there's a cap of about $45 on cash back at that rate (spending of $900). But still, that's $145 in your pocket for using this card for the few months when you're doing your heaviest shopping.
If you're going to spend more than $900, Chen recommends also signing up for the Chase Freedom card, which has $100 sign-up bonuses available too. The cap for cash back at that rate is $75, for $1,500 in spending. There are also rotating categories that count for 5% cash back rewards. Chen also notes that when you sign up through one of the bonus offers, you get a shorter period at an introductory APR, so your fees may go up faster if you don't pay off your balances.
For an overall best bargain, Chen recommends the Citi AAdvantage card, which is offering a special promotion through October 31 that plunks 75,000 miles in your account as a sign-up bonus. That's enough for a free round-trip flight to Europe. There's no annual fee for the first year, and there's a requirement to spend $1,500 within the first six months. Chen liked the deal so much he signed up for it himself.
Doing the math, if you sign up for all three of these recommendations, you'd net $200 in signing bonuses, plus an airline ticket worth at least $500 (potentially much more depending on where you go), plus cash back of at least $120, all for spending what you would be spending normally. That could make for a very good Black Friday in 2010, indeed.
Watch Tim Chen give his top three credit card picks via Skype:
Beth Pinsker is dealnews' Editorial Director. She was most recently the Editor of WalletPop.com, and has been a life-long bargain hunter. Follow her on Twitter — @bethpinsker. You can also sign up for an email alert for all dealnews features.
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