The Pros and Cons of Using a Credit Card for Holiday Shopping

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It's never too early to plan your holiday shopping. That's the best way to avoid panic shopping at the last minute. Panic shopping can lead to a busted budget, which often leads to debt. So make a vow that this is the year you'll get your shopping done early.

Okay, so you're on board with the early shopping plan and now you have another decision to make: Do you put holiday gifts on your credit card or do you pay cash?

As in most things, there are pros and cons when it comes to using credit cards for holiday shopping. Let's take a look at both sides of the issue so you can make the best choice for yourself.

The Pros of Using Credit Cards for Holiday Shopping

Before jump into the details, this list assumes you're going to use your card responsibly and stick to a budget. If you don't trust yourself – and there's no shame in that – then stick to cash. But if you are the master of your credit cards, then you can really benefit by using them for holiday shopping.

Tracking your expenses

Make a list and decide how much you'll spend on each person. If you use your credit card for everything related to holiday shopping, you can track your expenses by checking your online accounts. The only snag is that there's a short delay between the time you make the purchase and its appearance in your account online. So take that into consideration when you check your credit card account.

Keep your receipts and match them to the posted items in your account online. This is also a good way to check for fraud, which increases during the holidays.

Earning rewards

As long as you don't carry a balance, using a rewards credit card will pay off, especially if you do it strategically. Before you hit the mall or hop online, know how the rewards program works and how to benefit the most from it. For example, if your credit card gives you 5 percent cash back for purchases on Amazon.com, then make as many purchase as you can there. But also be aware of any limitations you might have per category.

You can even save on travel during the holidays if you're using a miles rewards card for shopping. Earn a lot of miles and put it towards a plane ticket to go see your loved ones during the holidays.

Many cards also allow you to redeem your rewards for a statement credit. You can count that as cash back in your pocket. Ka-ching!

Online shopping malls

These are also called "shopping portals." Most of the major issuers offer an online shopping mall where you can get bonus rewards if you use the issuer's credit card. Here are a few examples: Shop through Chase (formerly Chase Ultimate Rewards Shopping Mall), Citi Bonus Cash Center, and Discover Deals.

You'll see offers for bonuses from a variety of merchants and the savings is on top of what you're already earning. For example, when you shop at Discover Deals, you can get from about 5 percent to 20 percent extra cash back on your purchases in their shopping portal. The savings are real and it's worth checking out.

Consumer protections

Most issuers offer zero liability for fraudulent purchases. If you use a debit card and the retailer's account gets hacked, your account could be drained. You might get all of your money back, but there could be a delay. The last thing you want during the holidays is a cash flow crisis.

Aside from fraud protection, you might also benefit from extended warranties, purchase protection, and more. The exact perks and benefits vary by card, so be sure you understand what each card brings to the table. If you use a card that offers an extended warranty, then you can confidently turn down any attempts by the retailer to get you to purchase a policy.

The Cons of Using Credit Cards for Holiday Shopping

While there are certainly advantages to using a credit card, there are also some disadvantages that you should consider. After you think about both sides – the pros and the cons – you'll be all set to make an informed decision about how you'll pay for your shopping this year.

Ending up in debt

This is one of the biggest problems with credit cards, so it's essential that you be honest with yourself. Many people use credit cards responsibly and that means you track your spending and pay your bill in full by the due date every month.

But if you're prone to impulse buys and don't have a great system for staying on budget, then it's best to stick with cash. Otherwise, you'll carry a balance and end up wasting your hard-earned money paying for the interest on your balance. If you do decide to stay away from credit, use your debit card. Walking around the mall with wads of cash in your wallet isn't a smart idea.

And don't be hard on yourself if you can't manage credit cards. We all have flaws. So pat yourself on the back for having the courage to be candid about your situation.

Experiencing a temporary score decrease

If you have high credit limits, then might not impact you at all. But for some folks, putting all your holiday expenses on one or two cards could increase your credit utilization ratio and possibly decrease your score.

Your credit utilization ratio is the amount of credit you have used compared to the amount of credit you have available. As your ratio goes up, your score might go down. That's why a large balance on a card could lower your score.

As long as you pay the bill in full by the due date, your score will bounce back within a few months. If you're planning to apply for credit soon, this could be an issue for you. But there's no long-term damage unless you're going into debt for the holidays.

To limit the damage to your score, you can spread out the expenses over several cards or make an extra payment in the month of December. And for peace of mind, you can keep tabs on your credit score by using LendingTree's free credit score. If you are in the fair credit band, consider the best credit cards for fair credit.

Getting your account information stolen

Unfortunately, we live in a time where data breaches are fairly common. As already mentioned, fraud increases during the holidays, so you have to stay on your toes and check your online accounts frequently.

You've probably recently received a new credit card with a chip to replace your old card. The new chip cards will help prevent the cloning of cards. A common way to steal someone's information is by using a skimming device which steals account information. A thief uses this information to create a duplicate credit card. With a chip card, this type of theft is almost impossible.

But there's a downside to this, too. Security experts predict that online fraud will increase because hacking into a website will become the easiest way to steal financial data. So keep this in mind if you're buying a lot of items online. Be diligent about checking your debit and credit card accounts often during the holiday season. The chip cards do make us safer, but it's still possible to be a fraud victim.

Now that you know the pros and cons of using a credit card for holiday shopping, you can make an informed decision that's right for your situation.

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