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During the final few months of the year, many people are wrapped up in holiday shopping and seasonal deals. In fact, according to our holiday shopping poll, half of holiday shoppers plan to start their holiday shopping by the end of October — and 27 percent of shoppers will go into debt for these purchases. When their credit card bills are due come January, those who are carrying debt may pay a lot in interest. This is particularly true for subprime borrowers, who tend to see much higher APRs.
However, with the right credit card and the right holiday shopping strategy, you could avoid facing interest charges on your holiday purchases for a year or longer. The key here is to look for credit cards that offer 0 percent introductory APRs on new purchases for a limited time. That way, you won’t have to pay the regular APR unless you carry debt after the 0 percent interest offer expires.
How to save interest on holiday spending
So, where does holiday shopping enter the picture? Let’s say you apply for (and receive) a 0 percent intro APR credit card. You could appoint it as your “holiday-shopping card” and put all of your holiday purchases on it, reserving your regular credit card for your day-to-day expenses. When the holiday season ends, you’ll have the opportunity to chip away at the balance with regular payments and save money on interest charges.
Holiday spending example
According to the National Retail Federation’s 2021 survey, the average American consumer planned to spend $997.73 on gifts, holiday purchases and other items in 2021. This year, consumer shopping trends are expected to keep pace with this number.
Let’s use $1,000 as a baseline figure. If you put $1,000 in holiday spending on your everyday credit card — and you want to avoid paying interest — you’ll have to pay the entire balance off at once (including any non-holiday purchases). If you opt to pay the minimum balance or a portion of the balance over time — which, as a general rule, we don’t recommend — you could end up paying a significant amount in interest. Remember, the average credit card APR is currently above 18 percent.
With a new credit card that offers a 0 percent intro APR on purchases for a limited time, you might get around 12 months (or more) to pay off holiday purchases. For example, if you have 12 months to pay off a $1,000 balance, you’ll pay around $83 per month — and more importantly, no interest on those payments.
Other benefits of getting a holiday-shopping card
Beyond saving money on interest, there are many other possible benefits of getting a 0 percent intro APR card for holiday shopping. Some of these possible benefits include:
An extended repayment window
What if you could avoid interest payments for more than 12 months — potentially much longer? Many of the top 0 percent intro APR cards have introductory APR offers that last 15, 18 or 21 months. A lengthier zero-interest offer could mean lower monthly payments, along with more time to make them. The key, of course, is to pay off your balance before the intro offer expires and the card’s regular APR kicks in.
Cash back on eligible purchases
A number of zero-interest cards also have cash back programs that reward you for all eligible purchases. For example, a flat-rate card like the Wells Fargo Active Cash® Card, which earns 2 percent cash rewards on all purchases, would earn $200 in cash back on $1,000 in purchases. You could then redeem that cash back as a statement credit to reduce your overall balance.
Other zero-interest cards might offer an even higher rewards rate — which may be fixed or rotating — on select category purchases. Common categories may include restaurants, groceries, travel or certain types of shopping purchases.
For example, the Blue Cash Everyday® Card from American Express, which comes with a 0 percent intro APR on purchases for 15 months (then a variable APR of 16.99 percent to 27.99 percent), offers 3 percent cash back on U.S. online retail purchases (on up to $6,000 per calendar year). If you buy $1,000 in gifts from online retailers, you could earn $30 in cash back.
Then there are rotating-category cards like the Chase Freedom Flex℠, which also comes with a 0 percent intro APR on purchases for 15 months (then a variable APR of 19.74 percent to 28.49 percent). This card offers 5 percent cash back in rotating categories each quarter (on up to $1,500 in purchases, then 1 percent back; category activation required). For Q4 of 2022, Chase’s bonus categories include Walmart and PayPal purchases. If you buy all of your gifts at Walmart or via PayPal, you could earn $50 in cash back on that $1,000 spent.
Many 0 percent intro APR cards — including all of the cards mentioned above — offer welcome bonuses. Welcome bonuses offer you a specific amount of cash back (or another form of rewards) for spending a certain amount of money within a certain timeframe.
For example, the Chase Freedom Flex offers a $200 cash bonus after spending $500 within the first three months of account opening. If you’re planning to spend around $1,000 on holiday shopping over the next few months, you’ll be able to easily earn that $200 bonus, effectively reducing your total holiday spending to $800.
The bottom line
A 0 percent intro APR card is worth considering if you want to pursue a practical, responsible course of action for temporarily limiting your exposure to credit card APR. However, while not paying interest on purchases or earning welcome bonuses can be fun, they’re not an invitation to spend beyond your means and accumulate debt.