Before You Shop, Be Credit-Card Smart

The National Retail Federation expects $475 billion in sales during the holiday period this year and, if you're like many shoppers, you'll be using credit cards for a chunk of that spending.

So whatever your relationship with the plastic fantastic -- whether you're carrying hefty debt balances or are an occasional borrower or always pay your monthly bills in full -- you want to make sure the card you pull out of your wallet makes the most sense for you.

The average credit-card debt per household in the U.S. stood at $9,659 at the end of 2006, according to CardTrak.com. That number has marched steadily upward since at least the early 1990s.

If you pay your bills each month, credit cards offer a choice of lucrative rewards. But there are even credit-card deals for the debt-ridden -- ones that can at least keep the interest from ticking higher in the next several months.

Hope for the Indebted

If you already owe money on at least one card, you're better off using cash or a debit card until the debt is gone. But you know that.

Simply can't (or won't) cut the holiday budget? Then begin by lining your credit cards up on a table. Turn them over, call the phone numbers listed and ask what interest rate you're currently paying. (It may have changed since the last time you looked at a bill).

Next, tell the representatives that you're deciding which card to use this holiday season and ask if they can lower your rate. If they can't, ask to speak with someone else who has the authority to give you a better deal.

The card industry is competitive, so you'd be surprised how often this can work. Your card issuer may even come to you if you haven't used your card in a while. "I've gotten three letters from Capital One," says Edgar Dworsky, founder of consumerworld.org. "They're saying 'Give us a call!' In some cases you're being invited to get a better deal. Do it."

When you've found which card has the lowest rate, put the rest of them away in a drawer and use the one that's left for the next few months. Then, make a new year's resolution to get out of debt for good.

Temporarily in the Hole

Post-holiday debt is an occasional affliction for many consumers. Holiday travel and long gift lists may leave you owing money, but then a bonus rolls in or you hunker down and pay everything off.

If you end up in this category, you might benefit from a timely 0% balance transfer early next year: Here, you sign up for a new card and the issuer pays off your other card balances and transfers the debt to the new plastic. (One of the cards you already have may allow you to transfer balances in from elsewhere too.)

After you transfer the balance, the company gives you up to a year (or occasionally longer) to pay off the transferred debt without having to pay any interest on that debt at all. As long as you pay each month on time, don't make any new charges and rid yourself of the debt by the end of the introductory period, the temporary debt can cost you nothing, save for a balance-transfer fee that some issuers charge.

You'll find a list of current offers at creditcards.com (click on "Balance Transfer Cards" on the left). Check your mailbox for offers too.

REWARDS CARDS THAT REALLY PAY

 

Pay your credit-card bill off each month? Here are some cards to consider that offer especially generous rewards.

Cash-Back Cards

• Capital One No Hassle Cash Rewards

• Fidelity 529 College Rewards American Express Card

Points Cards
(good for travel, merchandise and other rewards)

• American Express cards that earn Membership Rewards points (several)

• Citi PremierPass (Elite or Regular)

Travel Rewards Cards

• Starwood Preferred Guest American Express Card

Getting Ahead

If you always pay your bills in full each month, congratulations. Make sure you're using cards that pay you cash back or other rewards you prefer.

One new card, the Citi CashReturns MasterCard, pays 5% of all purchases back to you during the first three months. After that, the refund falls to 1%, though there's no cap on what the bank will pay back each year, no annual fee and no expiration date on the refund.

If you're doing a lot of shopping at one retailer, it may make sense to take the store up on its offer of, say, 10% off purchases that day if you open a credit-card account with the store and its bank partner.

Words of Warning

Some cards offer 0% interest on new purchases (as opposed to balance transfers) under various circumstances. Read the fine print carefully, however. Consumerworld.org's Mr. Dworksy recently saw a card that requires customers to pay the interest for the entire promotional period on certain purchases if they don't pay the whole balance off in the introductory period.

If you're going to need a mortgage or other large loan in the next year or so, think twice about opening new credit-card accounts of any sort. Sometimes, doing so can cause your credit score to drop enough that it may affect the rates a lender will offer you.

Who should worry the most about this? It's difficult to generalize. But Craig Watts, a spokesman for Fair Issac, which writes the formula for the widely used FICO credit score, says that people with little credit history (like those who are younger) or folks who have paid bills late recently are especially vulnerable.

Finally, keep in mind that the card company can levy late fees, raise your interest rate and yank your rewards for the month if you pay your bill late.

It's easy to forget your bills when you're traveling or busy with holiday plans. That makes now a good time to set up automated payments from your bank account, so that the card company pulls a set amount (or the full credit-card balance) from your bank on the due date each month.

Most credit-card companies will do this, though they don't necessarily shout it from the rooftops. Once you set this up, your odds of paying late (and paying fees) go down dramatically. It's one less thing to worry about -- and it gives your card company a little bit less to celebrate this holiday season.

More holiday spending stories from Yahoo! Finance