Applying for a new credit card before the holidays could be a smart move – or a costly mistake.

3 minute read

Even if you already have a couple of credit cards, you may be tempted by the right credit card offer to apply for a new card before the holidays. After all, if you can earn rewards or a big sign-up bonus by charging your holiday shopping to the new card, why not apply?

In some cases, getting a new credit card to earn rewards or applying for one with a low-interest rate before the holidays can be a good idea. At the same time, what seems like a smart financial plan could backfire, leaving you with more debt than you can afford.

Here are five pros and cons of getting a new credit card for holiday shopping.

1. You could receive a sweet sign-up bonus

If you have good-to-excellent credit, you might be approved for a new credit card that offers a sign-up bonus. This type of offer typically requires you to charge anywhere from $500 to $5,000 on the card within three months after opening the account. Once you achieve that amount, you’ll receive a bonus ranging from $100 to as much as several hundred dollars, depending on the offer terms.

For example, you might have to charge $3,000 in 90 days for a card with a $500 sign-up bonus. Once you hit that amount, though, you can apply that bonus to your credit card balance, essentially saving $500.

Find out: 6 Signs You Shouldn’t Get Another Credit Card

2. You might run up too much debt

Even a lucrative sign-up bonus can have a downside. If it takes months or years to pay off your holiday shopping balance, the amount you’ll pay in interest will cancel out and probably even exceed any bonus received. To avoid that scenario, only apply for a card with a required transaction amount that you can afford and then pay off the statement balance each month.

Find out: 5 Ways to Tell if a Balance Transfer is Right for You

3. You can finance a large purchase with a 0% APR

Are you planning to purchase an expensive gift this holiday season? Or maybe you have a big purchase in mind for yourself and want to cash in on holiday sale prices. If so, applying for a credit card with a 0% promotional APR that lasts anywhere from six months to two years can be a good way to make that happen. That way, you can make payments over time without paying any interest.

Find out: Take These 5 Steps to Bounce Back from Maxed Out Credit Cards

4. You could pay big if you pay late

Just as a 0% APR card can work in your favor, the terms for promotional APR offers typically come with a couple of strings that could tie up your finances later.

For example, if it’s a retail store card and you don’t pay off the balance by the end of the promotional period, you may have to pay retroactive interest on the full amount. If you pay late on a retail or major credit card with a promotional APR, the issuer may even cancel the promotion, bumping the interest rate on the card to a significantly higher amount.

Find out: How to Find the Best Credit Card for Your Lifestyle

5. Holiday shopping can rack up rewards

Charging holiday shopping to a new card with a generous rewards program can pay off, but only if you can pay off the balance quickly. For example, you can use your cash back rewards to knock down the balance to save on holiday spending. Or you can save on vacation later with the travel rewards. Be careful not to go overboard, though.

Overspending to earn rewards points could mean you’ll pay a lot in interest if you can’t pay the balance off fast. To avoid paying interest on a balance it takes months or years to get rid of, create a budget for holiday shopping, with a maximum amount you can afford to charge on the card and pay off with the next statement.

Now that you know some of the pros and cons of getting a new credit card before the holidays, take a look at your current credit card balances. If they’re not at zero, you may want to hold off on a new card and focus on paying down those cards. But if you’re disciplined enough to pay off a new credit card while reaping the benefits of its rewards and low-interest rate, a new credit card could be just what you need for your holiday shopping.

Find out: Want to Start Receiving Higher Credit Limits on Your Credit Score? Try Adjusting These Factors.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC