Which type of credit cards should you use for holiday shopping?

Retailers roll out Black Friday deals

By Janna Herron

'Tis the season for Black Friday deals, fancy parties and busted budgets. Americans this year are expected to shell out almost $1,000 per household for holiday expenses. Much of that will go on credit cards—Americans charge 40 percent more than average in December—a financial shock consumers won't face until their card statements arrive in January.

One savvy way to reduce the impact of your holiday spending is to choose the best type of credit card (or perhaps combination of cards) to take with you this Black Friday and beyond. (The smartest tip, of course, is to pay off your balances in full every month.)

Cards with bonus categories

Look for a credit card that provides accelerated earnings for specific types of purchases, usually 5 percent cash back on the first $1,500 in purchases. These cards typically rotate the purchase categories each quarter to reflect seasonal shopping trends. During the fourth quarter, these cards capitalize on holiday spending by giving bonus rewards for purchases made at department stores, big box stores and Amazon—popular stores for the holidays. In general these cards don't charge annual fees, so there's no extra cost to keep them open after the holidays.

Pro tip: You typically have to register for the quarterly categories before you can begin earning cash back.

Cards with sign-on incentives

Cards with introductory bonuses can help to offset the extra spending you do during the holidays. Some of the biggest incentives are worth between $400 and $500. But those require some hefty upfront spending, typically charging a minimum of $3,000 within the first three months to earn the bonus points and miles. That's a lot, but the average shopper is expected to spend nearly $1,000 this holiday season, or almost a third of the bonus minimum (plus many weeks after that to rack up the required spend).

For those who can't stomach spending $3,000 in three months, check out other credit cards that offer a more budget-friendly bonus minimum, such as spending $500 in three months to get $150 cash back.

Pro tip: No matter the size of the sign-on bonus, make sure you can pay it all off when your bill comes in. Or, any interest you accrue on a remaining balance will erode the value of the sign-on bonus.

0 percent APR cards

If your holiday spending typically spins out of control and you find an insurmountable balance in January, look for a credit card that offers 0 percent APR on new spending for a limited time and use it to make your holiday purchases. These cards apply no interest on new purchases between 12 months and 18 months, depending on the card, giving you time to pay off your holiday spending interest-free. You must have good credit, generally a 700 FICO score or higher, to qualify.

Pro tip: Create a feasible monthly payoff plan for your holiday balance, so you have no balance remaining when the 0 percent
 interest period expires.

Store credit cards

Shoppers may want to consider a store credit card as a way to get the most from their holiday purchases, especially if they are particularly loyal to one retailer and the card offers a substantial discount on your first purchase. Not all are created equal; some offer more than others. Below are ValuePenguin's picks for this holiday season.

Amazon: For online holiday shoppers, Amazon offers its prime members a credit card that gives 5 percent cash back on all purchases made online at the retailer—a stellar rate that is offered year-round. You also get 2 percent back at restaurants, gas stations and drugstores and 1 percent back on all other purchases. Points can be redeemed for future Amazon purchases, cash, travel, gift cards, and products or services from Amazon or third-party merchants.

Pro tip: Don't forget to consider the $99 annual fee and avoid the card's 0 percent APR financing options, which don't earn cash-back rewards and can be financially expensive if you don't pay off the balance in time.

Target: Check out the retailer's Redcard which offers a 5 percent discount on in-store and online purchases. Redcard holders also get extended returns and free shipping, a must during the harried holiday season. This year, cardholders also get early access to select Black Friday deals on Nov. 22.

Pro tip: Consider the Target debit card—which has the same major benefits including the 5 percent discount—if you don't want to open another credit card.

The TJX Companies: This company offers a platinum credit card that gets 5 percent back at its family of retailers: T.J.Maxx (online too), Marshalls, HomeGoods and Sierra Trading Post (online too). The MasterCard-branded card also gets 1 percent
 back at other stores. New cardholders get 10 percent off their first in-store or online purchase, a nice discount for the holidays.

Pro tip: Points can only be redeemed for reward certificates that can be used at T.J.Maxx, Marshalls, HomeGoods, Sierra Trading Post stores and tjxmaxx.com or sierratradingpost.com. Rewards certificates expire two years after the issue date.

Before Getting a Store Card

It's important to remember that store credit cards come with low limits, typically around $500, which may not be enough for all of your holiday purchases. Even if it is, you may get close to maxing out your limit, which will hurt your credit score. Store cards also aren't good for consumers who plan to carry a balance because the average APR on a store card is around 26 percent, much higher than the 17 percent average for regular credit cards. To avoid paying interest, pay your balance in full at the end of each month. If you may be tempted to open a store card on the spot, make sure your credit report is unfrozen or unlocked, so you can complete the application process.