Should You Pay for Your Holiday Shopping with Debit, Credit, or Cash?

The holidays are almost here, and that means it's time to start thinking about decorating, shopping, and spending plenty of quality time with your loved ones. For many, this truly is a magical time of year. However, when it comes to paying for holiday expenses, it’s important to make smart decisions. Otherwise, you could end up feeling the financial impact of your holiday magic well after the gifts have been opened and all the decorations are packed away.

If you’re like most Americans, you’ll probably do the bulk of your holiday shopping online this year. Not only is doing so more convenient, but many people are still dealing with safety concerns surrounding the COVID-19 pandemic. As you start planning out your shopping lists, you may wonder whether you’re better off paying for holiday expenses with cash, a debit card, or a credit card.

While the “right” answer will ultimately depend on your personal financial situation, there are some important things to consider.

Cash Can Help You Budget Better

Many people are still reeling from the financial effects of the pandemic, so if you’re concerned about your holiday budget, you’re not alone. If you were furloughed or your income isn’t as steady as it once was, it will be more important than ever to watch your budget.

Paying for holiday expenses with cash can help prevent you from living beyond your means. Committing to stop spending when you run out of money may mean you’ll have a simpler holiday this year, but it will also help prevent you from getting into a situation where you're still paying off your holiday debts well into 2022.

Cards Will Limit Contact

If you’re concerned about the safety of going out into large crowds to do your holiday shopping, then making the bulk of your purchases online probably makes the most sense. In this case, using a credit card to pay for holiday expenses will offer you some additional fraud protection.

If you do venture out to the stores, using a credit or debit card will allow you to have less contact with cashiers versus handing over cash and waiting for change.

Debit Cards Help Regulate Spending

If you’re not comfortable exchanging cash, then a debit card is the next best thing. Since you can only spend as much as you have in your account, paying for holiday expenses this way will ensure you don’t get in over your head.
If you're worried about your ability to stick to a budget, you may even want to open a bank account just for holiday spending and link a separate debit card to that. CCCU offers a Christmas Club account that will help you to automatically save, then use that money for your shopping.

Credit Cards Offer Better Rewards

If you’re confident you can pay it off right away, there’s nothing wrong with using a credit card to make your holiday purchases. Many cards offer rewards programs and fraud protection that you won't get with your debit card. Some cards even offer extra perks like purchase protection or extended warranties. CCCU offers a rewards card with a rate as low as 9.99%.
When shopping online, you can keep yourself from getting into trouble by using your online banking to immediately make payments to your credit card for the amount you spend. This is an extra step, but when you consider that credit cards can charge 16% to 20% interest, it’s well worth the effort

The Bottom Line

When trying to decide on the best way for you to pay for holiday expenses, it’s important to weigh each of the factors above. No matter which option you choose, you’ll still want to set a budget before you start shopping and commit to sticking with it.
As a general rule of thumb, it’s often a good idea to spend about 50% of your net income on important needs like housing, food, and gas, 20% on savings and paying off debts, and 30% on “wants” like eating out, entertainment, and gifts.
Ultimately, you’ll want to make sure you don’t overdo it. This is a time for creating memories and there’s nothing wrong with splurging on occasion, but you don’t want to overspend. Make smart decisions with your money today, and you’ll find that you’re much happier in the New Year.