Should You Pay for Your Holiday Shopping With Debit, Credit, or Cash? We Asked the Pros

Laveta Brigham

Getty Images Shopping deals are popping up earlier and earlier this year, even as the pandemic continues to affect Americans’ spending habits. The majority of shoppers say they plan to shop online this year both out of convenience and due to safety concerns, according to several surveys. As you begin […]

Getty Images

Shopping deals are popping up earlier and earlier this year, even as the pandemic continues to affect Americans’ spending habits. The majority of shoppers say they plan to shop online this year both out of convenience and due to safety concerns, according to several surveys. As you begin your holiday shopping you might be wondering whether now is a good time to buy with debit (or cash) vs. credit. As with most financial advice, the best decision for your pocketbook will vary based on your personal situation, but these finance and shopping experts have some tips on how to decide what’s right for you.

RELATED: How to Save Money During the Holidays

Worried about your budget amid COVID? Use a debit card or cash.

If you’ve lost your job during COVID or you’re struggling to make ends meet during a furlough, spend with caution. Experts across the board say that now is the time to pinch pennies if you’re concerned about where money for housing, food, or other necessities will come from.

To be sure you aren’t spending beyond your means, Sara Rathner, a credit card expert with Nerdwallet, suggests setting a holiday shopping budget and spending it with cash (or the digital alternative, your debit card). If you have a hard time curbing your spending, you can even set up a separate bank account or bucket (or an envelope with cash) just for holiday spending and stock it with the allotted holiday spending amount.

“And once the money is gone, it’s gone,” she says. “It might mean you have a simpler holiday, but it will also mean that you have a holiday you’re not paying off well into 2021.”

A NerdWallet study showed the average family spends $1,100 on credit card interest each year, which is money you’ll need if things are tight. Avoid racking up credit card debt every holiday season, but particularly this one, when money might be tighter than ever. Similarly, if you’re worried you could potentially lose your job in the near future due to budget cuts or the economic fallout, be sure you have your emergency savings account ready before spending a dime.

“The emergency fund that’s available is not for Christmas presents but for keeping a roof over your head, keeping food on the table,” Rathner says.

Worried about the virus itself? Use a debit card or credit card.

If you’re concerned about hitting the stores alongside other shoppers this year, skip the hubbub and shop online with your debit card. “There’s a bit of hesitation to actually physically going to the store this year,” says Sara Skirboll, RetailMeNot’s shopping and trends expert.

According to a recent survey, 71 percent of shoppers say they plan to shop online this year. That’s up 20 percent from last year, says Ted Rossman, an industry analyst with

“The pandemic is part of it, of course, but that’s not by any means the whole story,” Rossman says. “People also cited convenience as an evergreen benefit of online shopping, as well as better prices.”

If you will be shopping in-store, still use your debit card and avoid paying with physical cash if you’re concerned about contracting the virus. Experts point out that many stores were hesitant to exchange physical cash early on during the pandemic, concerned it could spread germs. If you count yourself in that cautious group, stick with debit cards instead—not credit cards. If cash is unavoidable, be prepared for the coin shortage still affecting some of the country and have exact change.

RELATED: 7 Times You Should Tip in Cash—and 1 You Shouldn’t

Doing just fine financially? Use a credit card.

If you’ve been lucky enough during the pandemic that your wages haven’t suffered, it’s safe to approach this year’s holiday shopping as you have in the past. That means budgeting in advance, planning to take advantage of deals, and deciding on debit vs. credit based on how quickly you plan to pay off any new debt.

Wondering how much to budget for presents? Rathner suggests the 50/30/20 rule. This breakdown allocates half of your monthly income for needs such as housing, food, and gas. The 20 percent will go to savings, retirement, and debts while about 30 percent can be used for wants such as entertainment, dining out, and giving gifts.

Budgeting takes time, especially if you’re just learning how to budget, so don’t wait until December to look at how much you’re bringing in and what you can afford to spend. Decide in advance and stick to your plan.

Rossman says that, whatever you plan to spend, avoid accruing additional debt this time of year. Surveys show shoppers are debt averse given the uncertainty in the markets, and debit cards—which have a finite spending limit based on the available money in your checking account—have become the favored method of spending over credit cards as a result. Additionally, younger people report being wary of adding credit to student loans and other debts as we continue to deal with the fallout from the pandemic, Rossman says.

“All of this has really combined to make debit cards the preeminent payment method. I don’t want people paying 16 or 20 percent interest on a credit card either,” Rossman says. “The best thing I think you can do is to use a debit card so you avoid interest.”

If you have credit cards and you aren’t concerned about paying them off quickly or you’re able to pay off the full balance immediately, Rossman says you can use them to your advantage now.

“Credit cards have better rewards programs, better fraud protections, and other retail perks like extended warranties and purchase protection,” he says.

RELATED: When to Use a Credit Card

Make credit work for you during the holidays.

Several credit card companies have changed how they do business this year. Perhaps the biggest shift comes from travel credit cards, many of which have altered their travel rewards and mileage programs.

“Many rewards are pivoting away from travel and more toward cash back, especially giving incentives for every day kind of spending,” Rossman says. “Most of that is centered around food such as groceries or takeout.”

In short, review your credit card rewards policies before you use them this year if you are planning to use credit and want to rack up as many rewards as possible. Chances are there are some changes you can use to your advantage, as well as some cards you’ll want to skip.

Both Discover and Chase, among others. have changed their cash back policies on major retailers such as Target, Walmart, and Amazon Prime, Rossman said.

If you do have another card offering rewards, see how you can double up during the sales this year. Big box stores competed with Amazon Prime Day this year by offering weeklong sales, and the same will likely happen around Black Friday and Cyber Monday.

“This year, with Amazon Prime Day being delayed, you’ll see copycat sales at places like Target and Walmart and plenty of others,” Rossman says.

Because Prime Day was later this year (and closer to the holidays than the typical July date), experts say more people will begin shopping sooner and sales will pop up sooner and for longer this shopping season.

“It’s not just going to be all about Thanksgiving weekend this year,” Rossman says. “It’s really going to be October, November, December, and a duration of good deals.”

If you haven’t taken advantage of your rewards this year, Rossman says now’s the time to go about redeeming them. Many shoppers likely have rewards for gift cards waiting to be cashed in, and those make great gifts as well.

If you are planning to pay your credit card off fully each month, Skirboll recommends spreading purchases out over the next few months.

“With Prime Day as the sort of unofficial kick off, you can spend for three months and you won’t have some crazy credit card bill at the end of December or early January,” she says.

This will also help your credit score: Remember that your credit utilization rate can hurt it, so keeping your credit card balance low or close to typical spending will boost your score, too.

Don’t overdo it.

Many Americans say that the holidays offer a much-needed respite from the crazy year that 2020 has become. As a result, they’re looking to create memories for their kids and foster a sense of normalcy, even if that means masking the true situation of their finances or fears.

“We do know that a percentage of people are planning to spend about the same amount of money as last year to create a sense of normalcy,” Skirboll says. “They’re looking to continue their family traditions. They want gifts under the tree, they want to decorate the house. It’s the one time of year you can kind of forget whatever problems you had.”

Brands will be feeding into that, pushing decorations, fixings for elaborate meals, and big-ticket gifts. Enjoy the holidays this year, but don’t compound your financial stress by overspending on the items you place beneath the tree. Instead, set a spending limit and use a debit card (or cash) to stick to it.

“Making it a simpler holiday, closer to home, could help save,” Rathner says. “Not only is it just more realistic in times like these, but it can also help you save a lot of money right now when you realize you don’t need all the extra stuff.”

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