You’re wise to be skeptical – it’s rare that anything in life is free. It’s not even quite true in this case, but close. We’ve paid for all our Christmas gifts for the last two years simply by doing our normal annual spending. It’s simple and I’ll share with you how we did it.
While our family celebrates Christmas, this method will work for your family holiday of choice, or any goal you want to set. This strategy worked well for us both because of the “free” Christmas and because it set clear parameters for gift spending each year.
I also want to mention up front: credit cards have great benefits if you use them right. They are also very dangerous if you get into a debt spiral. Please don’t.
That’s why I’m not selling anything in this post. I’ll name a specific credit card and how it works, but I’m not providing any affiliate link. Instead, think of this as a financial strategy that you could use if it works for you.
Table of contents
How We Use Credit Cards
We have two credit cards (one cashback and one miles) that we’ve held for years. We maintain these for stability and credit purposes. We also use high quality rewards cards from time to time.
Using credit cards for the majority of our spending has two major benefits:
- Easier to track spending
We pay off credit cards every month and never carry a balance. This is key – in one of our early financial phases we were stuck in the credit card interest quicksand. It took years to dig out. We’ll never go back.
How I Think About Credit Card Rewards
Credit card rewards are a nice extra benefit. It’s easy to become obsessive about them. As someone who is working at overcoming perfectionism and a tendency to optimize everything, I resist the temptation to add another max obsession.
You can get incredible benefits from credit card rewards, particularly with travel, by keeping spreadsheets, tracking rewards and timelines obsessively, and analyzing every reward move. I choose not to go quite that far.
I’ve found that you get (at least) 80% of the benefit by being intentional but not obsessive about it. I may miss out on the ideal strategy, but I also avoid the tendency to horde points and spend extra time and energy trying to squeeze out every penny.
As I mentioned before, we always carry a cashback card and a travel card. When we know we’ll be making a larger purchase soon, we’ll seek out a new reward card for the bonus. In the past two years, when we’ve downsized our home and moved twice in our pursuit of mortgage freedom, we’ve gathered some nice extra bonuses.
For this strategy, we replaced the use of our normal cashback card for two years. We may have been able to squeeze out more with points and transfers, but the cashback choice has worked just fine for us – especially given the pandemic pause in travel.
Obsess if you want. I prefer to take the 80% benefit and avoid the optimization twitch.
How We Got Christmas For “Free” – Twice
We started this strategy in 2018, and have now used it to budget and pay for the Christmas season in 2019 and 2020. It’s pretty straightforward, requires only a little bit of attention (if you want to max your rewards) and works even if you don’t obsess.
A simple benefit that fits with our life? That’s a solid decision.
The Discover It cashback card is the key ingredient here.
The card returns 1% cash on all purchases and 5% cash back (up to $1500 in purchases) on a set of categories that change quarterly.
As a sign-up bonus, Discover will double your reward at the end of the first year. (Still true at the time of writing this post.)
So for the first year, you are effectively earning 10% cash back in the quarterly categories (up to $150 in rewards each quarter) and 2% cash back on everything else.
The quarterly categories aren’t secret. For the two years we’ve used them they have been relatively stable. Three of the four fit easily with our regular spending patterns.
In each of these categories, you can spend $1500 in the quarter and receive the 5% cash back – so up to $75 in rewards. Again – that will be doubled at the end of the first year!
Quarter 1: January – March
Grocery stores, Walgreens, CVS
Quarter 2: April – June
Gas stations, Ride services, Wholesale clubs
In June of 2020, they added Home Depot as an option. It wasn’t previously available. This helped us get the most out of this quarter due to renovations when moving back into our rental.
Quarter 3: July – September
Restaurants and Paypal
Quarter 4: October – December
Online retailers: Amazon.com, Walmart.com, Target.com
How We Accumulated the Rewards Through Regular Spending
In October of 2018, my partner (TFI) applied for the Discover It card. We did not apply jointly, and I was not an authorized user of the card. (This will allow you to repeat the strategy if you choose.)
We then made most of our holiday purchases that year through the online retailers. Another technology purchase meant we capped out the full $1500 in spending for quarter 4 2018.
Throughout the year, we continued to use the card in each of the reward categories during quarterly bonus periods.
We also used the card for most of our regular purchases, except in circumstances where we were using another travel bonus card for a larger purchase. As an example – we used a moving company when moving to a smaller home, and those charges were made on a travel bonus reward card.
In many of the categories you can use the card to purchase gift cards to reach the $1500. We did this for groceries, but not for the gas stations rewards. We did not cap quarter 2 in either year because these are not large spending categories for us. (Again, we were pursuing 80% of the benefit without the stress of maxing.)
For the restaurant category in 2018, we had two travel experiences with friends/family during that period and simply paid for group meals using the card. That, combined with intentional Paypal purchases allowed us to cap the category.
We then reentered Quarter 4 with a few weeks of the 5% online retailers. We did not obsess about trying to hit the full cap, but did order anything we knew we’d purchase for Christmas or other use.
Important – Throughout the year we paid off our balance immediately each month to avoid interest charges.
At the end of the one year period we had accumulated $406 in cashback rewards.
Discover applied the matching bonus and the reward doubled to $812.
We used the $812 in rewards as our Christmas budget for 2019. This may seem like a little or a lot to you depending on your family size and level of gift giving.
It worked well as a budget for us. This became our target amount for gifts to family and friends. We do give a larger amount to charity, but that’s a separate budget item.
TFI and I have long had a practice of not giving gifts – we travel together instead. We use travel rewards to fund a portion of that – but that’s a whole separate strategy.
You can receive your cash back rewards from Discover in several ways:
- Cash into your bank account
- Statement credit
- Direct purchasing through Amazon.com and Paypal
- Gift cards
We used it to pay off the remaining balance and took the rest in cash back. We then used that cash to fund gift buying for 2019. If you were only doing this for a single year, you could make your purchases online again (and receive more cashback credit) or use the gift cards, then cancel the amount using a statement credit.
We had a different plan.
We took the cash and used it to fund a repeat of the process. In 2019, I applied for the Discover It card in October. As a new user, I received the first year doubling reward.
Once again, we purchased any gifts we could from the online retailers. We paid for them using the cash back from 2018-19.
We then followed the same process and maxed rewards categories where possible. Since we were traveling less in 2020 (I wonder why?) we had less travel reward spending and used the card for more purchases. This balanced out lower restaurant purchases in quarter 3 2020.
The result of the second year? $398 in bonus.
That doubled to $796 for our Christmas budget for 2020. We’re making our purchases online with the card and using the bonus to cancel charges. Free Christmas #2!
Summary – A Simple Credit Card Rewards Strategy
There you have it – how we used credit card rewards to pay for Christmas TWICE. We did it by following, for the most part, our normal spending and not obsessing over maximizing every penny.
In short, it was a solid financial bonus without any additional stress. That’s a win in my book.
Here’s a quick summary of the strategy:
|A SIMPLE CREDIT CARD REWARDS STRATEGY|
|1.||Apply for the Discover It card (recommend October)|
|2.||Make purchases in quarterly bonus categories (starting with online retailers for holiday gifts) for 5% bonus|
|3.||Use the card for other regular purchases (1% bonus) when not pursuing other bonus strategies|
|4.||Pay off charges every month to avoid interest charges|
|5.||Receive matching bonus at 1-year anniversary – CASHBACK DOUBLES|
|6.||Use the cashback amount for holiday purchases and budget|
|7.||Repeat with another user if you wish|
This may not be an optimized strategy, but it’s easy to execute and provides you with a solid benefit.
The Discover It is a solid cash back card option if it matches your spending priorities. It’s hard to beat 2% (or 10% in quarterly categories) for the first year.