Use Your Credit Card Rewards to Buy Holiday Gifts

Posted by Shaun Morgan in Credit CardsOctober 27, 2021(Last Updated July 25, 2022)5 min read
Key Takeaways
  • Credit card rewards hacking is one of the best hacks for automating your savings. 
  • Save up your monthly cash back rewards all year and use the total to buy holiday gifts in December.
  • To take full advantage of your credit card rewards program, you must pay off your balance in full at the end of each credit card statement.
Are you ready to make some real money moves?

Holidays are supposed to be a time of happiness and joy, but too often, they just cause financial dread. Maybe you feel obligated to spend your money on presents for every relative, friend, and pet on your ever-growing list. Or perhaps you feel like you have to take a lavish vacation with your holiday time off. Either way, your paycheck seems to dwindle faster and faster each holiday season. 


Holidays are incredibly emotional times, and the number one reason that we spend money is our emotions. We spend money when we’re happy, we spend money when we’re sad, and we spend money when we’re stressed. Unfortunately, that leaves very little room for saving. Therefore, the best way to save for the holidays is to take your emotions out of it. One of the best ways to remove your feelings is to automate your savings.  


Credit card rewards hacking is one of the best hacks for automating your savings. 


Credit Card Rewards Hacking 


Credit card rewards hacking is simple. You put all of your holiday expenses on your credit card with the highest and best rewards program, and then you pay off that credit card entirely each month to avoid interest. 


In the end, you have money coming back into your pocket on every purchase and no money coming out for interest. 


It is simple genius if you have the discipline to do it.


The Key to Credit Card Hacking 


Credit card hacking is such a simple concept, but it is incredibly easy to mess it up. People are good at the first two steps: getting a high rewards credit card and then starting to spend money on it. However, they neglect the third and most important step—pay off the credit card each month. 



Let me give an example of why this is so important. 


Let’s say you charge $1,000 worth of expenses on your credit card. Most credit cards offer between 1% and 3% in rewards, although I’ve seen up to 5%. But for the sake of this example, we will say you get 2% cash back per transaction.


Total expenses on credit card: $1,000 


2% cash back on the $1,000 worth of expenses: $20. 

Woo hoo, you did it! You’re getting cash back. 


However, you decide not to pay off your credit card in full at the end of the month or whenever your payment is due. 


If you have a 24% APR on your card, a fairly standard interest rate for credit cards, you will be billed interest for that month calculated as 24% divided by 12. The reason you divide by 12 is the 24% APR is for the year. (APR is the annual percentage rate.) Therefore, you are charged one-twelfth of that amount each month. More importantly, you must note that the interest also compounds, which is a bigger problem. However, first, let’s focus on the first interest payment.


24% divided by 12 is 2% 

You have now been charged 2% in interest. 


$1,000 x .02 = $20  

That is $20 you gained per cash back rewards, but then $20 out that you have to pay in interest. So you’ve made no money. 


If you fail to pay off your credit card balance again the next month, you will be charged 2% on the $1,020 you now have, assuming you didn’t use your $20 in rewards as a statement credit. So, for the next month, you now owe $20.40, and so on. 


If you are going to use the credit card rewards hack, you must pay off your entire credit card balance each month or all of your hard work will be thrown out the window. 


How To Pay for the Holidays with Credit Card Rewards 


Now that we understand the basics, we can learn how to pay for your holiday gifts with credit card rewards. 


Let’s say that you have a median income of $50,000. 


For most Americans with an average annual income of $50,000, at least 50% of your income will go to the basics of life, taxes will eat about 20%, and many experts recommend a minimum of 10% invested, which leaves 20% for other purchases. Some of your basics can be paid for with a credit card, so around 1/3 of your income will probably end up on a credit card in a given year if you use it for most purchases. 


1/3 of $50,000 comes out to $16,500 spent on a credit card each year


If you paid off your credit card balance every month for the whole year while earning 2% back on all of your purchases, you’d have $330 sitting on your credit card in rewards. The $330 in cash back is a significant amount of money you can now spend on your holiday shopping. 



By avoiding the urge to overspend, automatically saving in the form of credit card rewards, and paying off your credit cards each month, you can do all of your holiday shopping with your rewards. 


Holiday Credit Card Hacking Pro Tip 


You want to make sure that everything you buy for the holidays is purchased on that same credit in order to secure these two advantages. 


First, you can seamlessly use your rewards as a statement credit. Therefore, instead of having your rewards points issued as a gift card or using the points on products and services, you can put the cash back rewards directly towards your statement balance. For example, if your balance is $500.00 and you have rewards worth $50, you can seamlessly put the $50 towards the statement balance, leaving you with $450.00 to pay. Keeping the transactions and rewards all on the same card makes it simple for you. 


Second, you get the ball rolling on rewards for next year as soon as you’ve made purchases for this year. Those $330 in purchases still count towards your rewards, so you’re starting the new year off with a savings of $6.60 in rewards.


Compounding Credit Card Offers with Rewards 


Finally, cash back is not the only type of reward offered by credit cards. Often credit card companies entice you to open a new account with a statement credit, usually between $100 and $500. 


By now, you’ve become very savvy at using credit cards to your advantage by racking up cash back and paying off your credit card entirely each month. However, considering your gross income and credit score, you might want to consider opening up a new credit card to get the statement credit. This can give your holiday money savings an even bigger boost. 


This hack works by opening up a new card around January and making sure to meet their minimum spending requirements to get the new account statement credit. In this example, you spend $1,500, and your statement credit is $250. 


Since your credit is automatically applied to your account, you would withdraw the $250 from your checking account and put it into your savings account since you don’t need it to pay off your credit card balance. Then just don’t touch it until December. 


That’s $250, plus whatever interest your savings account is paying, in statement credit money, plus $330 in credit card rewards, so you now have $580 to spend on the holidays the next year.


With some forethought and determination, anyone could pay for their holidays using a combination of their credit card rewards.

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