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The Right and Wrong Ways to Finance Holiday Shopping

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While it's not yet time to make New Year's resolutions, you're going to have to swear off procrastination and rethink your retail habits if you want to minimize the cost of holiday shopping. Well, sort of. It's important to avoid a type of retailer-issued financing known as deferred interest because, like procrastination, it could simply delay the inevitable and come back to bite you in the form of hundreds or even thousands of dollars in unnecessary costs.

Deferred Interest: The Wrong Way to Finance

A deferred interest payment plan works much like a regular 0 percent credit card, except there are some big-time strings attached. You get an initial interest-free term, sure, but instead of finance charges only applying to whatever balance remains thereafter, they're backdated to the original purchase amount if you aren't debt free by the time it concludes. In other words, a minor hiccup could rewrite history, making it as if the 0 percent rate never existed.

That's certainly not the kind of Christmas miracle you'd hope for, especially since it could effectively make holiday shopping 27 times more expensive.

How can one avoid such an unfortunate event?

Well, according to a Card Hub study, nearly two-thirds of the retailers that offer financing use deferred interest. Among them are Best Buy, Walmart, Amazon, Toys R Us, Victoria's Secret, Apple, and a whole mess of other wildly popular stores from which a large portion of holiday gifts originate. The study also found retailers to be overwhelmingly secretive about their financing options and found their employees ill-prepared to explain them to prospective customers. Your best bet is therefore to avoid retailer-specific financing offers altogether.

That doesn't mean you have to disappoint your children with a lackluster haul of presents because you can only afford to pay so much right away, though. There are indeed other, less harmful financing options available as well as a number of ways to effectively subsidize the roughly $800 holiday shopping tab the average consumer is expected to run up.

Regular 0 Percent Credit Cards: The Right Way to Finance

Somewhere around 50 percent of consumers have excellent credit, and that's the golden ticket to a goldmine of holiday savings. Credit card companies are currently offering unprecedented initial rewards bonuses and 0 percent deals to new customers with such lofty credit standing, and depending on your financial situation, that could be worth up to $1,000.

  • Slate Card from Chase: A so-called "free balance transfer credit card," Slate offers 0 percent on transferred debt for 15 months without charging a transfer fee or an annual fee. It could therefore save the average household, which is expected to have around $7,500 in credit card debt after the holidays, more than $1,400 in interest and fees.
  • Citi Diamond Preferred: This card offers 0 percent on purchases and balance transfers for 18 months, but is 3 percent balance transfer fee makes it better suited to financing upcoming big-ticket expenses (like holiday shopping), rather than reducing the cost of existing debt. Heck, a year and a half with no interest could help you afford two holiday seasons.

Other Holiday Saving Tips

Whether it's saving on planned purchases or getting some extra cash to play with, every penny counts when it comes to holiday shopping. That's why you shouldn't overlook any of the following saving strategies.

  • Buying Discounted Gift Cards: Gift cards are set to be the most requested type of present for the sixth consecutive year, and the fact that so many gift cards were given and not redeemed in past years (41 billion worth went unused from 2005 to 2011) means there's a big after-market where you can get discounts up to 80 percent.
  • Selling Unwanted Gift Cards: Each year, around 25 percent of people have at least one unredeemed gift card left over from the previous holiday season. Instead of letting yours languish in a drawer somewhere, sell it on an online gift card exchange and supplement your spending power. You can get up to $0.95 on the dollar, after all.
  • Scoring an Initial Rewards Bonus: A number of credit cards offer lucrative sign-up bonuses, which could obviously help you replenish a bank account with a bad holiday hangover. For example, charging $3,000 to the Chase Sapphire Preferred Card during the first three months will earn you a $400 statement credit, and it doesn't charge an annual fee during the first year either ($95 after that). Strategically using such a card for at least the holiday season could therefore make this time of year much easier to stomach financially.

In the end, there are perhaps more savings opportunities during the holiday shopping season than any other time of the year; you just have to know where to look. That's a good thing too because it's also one of the most expensive times of the year.

Odysseas Papadimitriou is the CEO of the credit card comparison website Card Hub and the personal finance social network Wallet Hub.