How I Fund My Holiday Budget With Credit Card Rewards

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The average U.S. shopper expects to spend about $718 on holiday gifts this year, according to Accenture's 2014 Holiday Shopping Survey, but unless you're a dumpster-diving enthusiast, it can be difficult to avoid the pinch that the shopping season puts on your budget. Although I'd never brave the lines on Black Friday just to get a deal, buying presents at full price doesn't sit well with me and it hasn't for the past few years.

Instead, I use a couple of cash-back programs, in which I accumulate nearly $400 annually. I apply these earned points toward holiday gifts, which keeps out-of-pocket expenses low and circumvents the holiday debt hangover that's so fondly discussed come January.

Filling Up on Credit Card Rewards

My daily commute is about 64 miles round trip. Even with my fuel-efficient car, I spend a considerable amount on gas alone. About one year into this commute, I decided to make the best of my situation by getting paid in the form of cash back rewards. I found an unbeatable credit card offer that gave me 5 percent cash back per dollar on gas, 3 percent on groceries and 1 percent on other purchases -- the 20,000 bonus credit (equivalent to $250) upon sign up sweetened the deal, too.

Within the first three months of using the card exclusively for gas and groceries, I accumulated $350 in credit card rewards redeemable for a gift card. This, along with a $25 cash-back gift card I obtained through a (now-defunct) cash back debit card program, brought my brother's SLR camera bundle from an already reduced $486.05 to $111, after applying $375 in cash back credit. Granted, this purchase was a bit extravagant, but saving 77 percent of the total cost helped ease the blow.

%VIRTUAL-pullquote-After all, I'm spending the money regardless, so I might as well earn cash back.%From that moment on, I knew I was on to something. The signup bonus propelled me to reaching the $350 mark quickly, but since that was a one-time offer, I decided to use my rewards card for all my spending needs, instead of limiting charge to gas and groceries. After all, I'm spending the money regardless, so I might as well earn cash back.

These days my credit card's point exchange rate has changed a bit, with a $250 gift card requiring some 29,000 points to redeem instead of 25,000 like when I first signed up. This year, I've already cashed in my points for a $300 Visa (V) gift card.

My vehicle also qualifies for a manufacturer lifetime mileage reimbursement program, due to inflated MPG figures. As long as I own the car, I receive a gift card refund based on the amount of miles I've driven and the average cost of gas in my area. To add to my cash-back income over the holidays, I allow my accrued reimbursement amount to accumulate all year, which typically amounts to about $140.

3 Holiday Shopping Tips Using Rewards Points

Successfully funding your holiday shopping with rewards credit card points requires precision year round, as charging every purchase on a credit card can easily get out of hand. Here are a few ways I maintain the balance between earning points and saving money.

  • Avoid surprise credit card balances. I never purchase more than I can afford to pay back, but that doesn't mean seeing a credit card statement with a $2,000 balance doesn't make me queasy -- and nervous. To minimize any surprises, I always make sure to check my recent account transactions to ensure all charges are legitimate. I also make a milestone payment toward my balance immediately after every paycheck as an added check-in.
  • Don't lose out on sales Love it or hate it, retail stores use Thanksgiving weekend to ramp up on discounts and free shipping incentives to increase their revenue. If you keep your blinders on and focus on only purchasing the items on your gift list, you can use this time as an opportunity to save money. But timing is everything -- always verify how long the free shipping option will take to receive any gift cards you've redeemed. I always redeem cash back points about two weeks before the Thanksgiving weekend to ensure I have the funds to support my shopping trips.
  • Don't limit your options If you found a tempting holiday deal at Target (TGT), you may think redeeming a Target gift card makes sense. In reality, purchasing retail-branded gift cards in lieu of a Visa or MasterCard (MA) gift card cuts your options short. What if the item is out of stock and rain checks aren't available, or you found a better deal closer to the holidays-- do yourself a courtesy and don't lock yourself down to one store.
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