Black Friday bargain hunters shop at a Walmart store in New Jersey on November 26, 2021.
Tayfun Coskun | Anadolu Agency | Getty Images
More and more Americans are struggling financially just as peak shopping season kicks into high gear.
Still, shoppers will still shell out $1,455, on average, in holiday gifts, matching last year, according to a recent report.
Besides the amount you spend, the payment method you choose at checkout can go a long way in saving you money and keeping you out of debt.
Credit cards to buy now, pay later, here’s a breakdown of some of the best ways to pay this Black Friday.
“The credit card is the gold standard in terms of rewards and buyer protection, but interest rates are a huge downside,” said Ted Rossman, Senior Industry Analyst at Bankrate and Creditcards.com. “The biggest thing that would worry me is the debt.“
About 60% of Americans live paycheck to paycheck before November. This can make paying on credit attractive, but there may be other options that better suit your financial needs.
“It comes down to knowing yourself,” Rossman said.
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Most Americans rely on credit for convenience, as well as rewards and buyer protection programs. When it comes to holiday shopping, cash back or rewards cards offer an additional bonus of 2% or more in certain categories.
“If you have multiple cards in your wallet, use the one that will give you the most value back on the purchases you make,” said Elly Szymanski, assistant vice president of credit card products at Navy Federal Credit Union. . “For example, a card that lets you redeem rewards on your everyday spending for cash back, gift cards, or merchandise may be your best bet for holiday shopping.” (CNBC’s Select offers a comprehensive roundup of the best cards for holiday shopping.)
If you’ve already accrued rewards, now is a good time to cash them in, Szymanski added. “With many households looking to spend less this holiday season, one of the best ways to save is to take advantage of the points and rewards you’ve accumulated over the year using your credit card. “
However, credit card interest rates are at record highs and only rising as the Federal Reserve raises rates in an effort to curb high inflation. With annual percentage rates approaching 20% or even 30% on some retail cards, racking up credit card debt will be expensive. (In debt? Follow these steps to help reduce high interest rate account balances.)
“Credit cards should only be used if you can pay them in full each month,” warned Chelsie Moore, director of wealth management solutions at Country Financial. “Use them as if the money were coming straight out of your checking account.
“So if you see yourself spending beyond your budget, you may need to switch to using cash or a debit card,” Moore said.
Buy now, pay later
The ability to spread out a purchase without interest offers a distinct advantage over credit cards. However, studies have also shown that installment buying could encourage consumers to spend more than they can afford. Additionally, some users say making a return — which is essential when it comes to holiday gifts — could be trickier with this payment method.
This season, more consumers will have the option to buy now and pay later when shopping online at retailers like Target, walmart and Amazon, and many vendors also have browser extensions, which you can download and apply to any online purchase. Then there are the apps, which also let you use installment payments when buying things in person, just like you would use Apple Pay.
But for now, BNPL loans are not subject to the same regulations as credit or debit cards and there is less purchase protections, including the ability to dispute charges if you purchased a good or service that was not delivered as promised.
Cash or debit
Fewer and fewer consumers are using cash these days, but there can be some advantages when it comes to buying gifts, Rossman says, including the ability to make a purchase for a loved one under the radar.
Additionally, merchants are increasingly encouraging cash transactions to avoid credit card transaction fees. Thus, in some cases, paying cash can reduce the purchase price by around 3%.
“There was a backlash over credit card processing fees,” Rossman said. “One of the levers that merchants pull is to offer cashback.
Rossman advises shoppers to do the math: the processing fee savings could exceed what your credit card offers in cash back rewards. “Especially if it’s an expensive item, it could really add up,” he said.
In addition to potential savings, relying on cash or a debit card can help you stick to a budget, other experts say. Hiding money in an envelope to buy holiday gifts (or any other spending category) is an age-old hack for staying disciplined with your spending.
Just recently, the envelope budgeting method made a comeback on TikTok in the form of “cash stuffing”.
Of course, you don’t need an actual envelope.
“Some find it helpful to have multiple checking accounts with smaller amounts of money, so you can have dedicated debit cards for specific purposes,” Moore said.
Nurphoto | Nurphoto | Getty Images
Apps like Apple Pay, Venmo and Zelle work like cash and are almost as easy to use, even Amazon now offers Venmo (buyers who linked their accounts before Nov. 18 got a $10 credit to use on Black Friday).
But like BNPL, peer-to-peer payments have varying degrees of consumer protection, which could also be problematic when it comes to getting a refund.
Trying to get money back from your personal account after it’s been transferred to someone else may be more work than seeking a refund from a credit card company, which often waives charges almost immediately and fights on your behalf.
“It’s kind of like putting the toothpaste back in the tube,” Rossman said.
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