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The Average American Will Spend Nearly $1,000 on Holiday Shopping This Year. Here’s When You Should Use Cash or Credit

A photo to accompany a story about using cash vs. credit for holiday shopping Getty Images
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The right credit card can be a great shopping tool no matter the time of year. But during the busy holiday shopping season — especially one rife with concerns about supply chain shortages and inflation — credit cards can provide valuable protections and savings on your spending.

But other holiday shoppers may find using cash or debit instead of credit cards is a smarter option. If you have high-interest debt already, for example, or a strict budget to adhere to, cash can make it easier to avoid spending more than you plan to.

With Americans expected to spend an average $997.73 per person on holiday gifts and items in 2021, according to National Retail Federation (NRF) estimates, it can pay to choose the right spending method for your goals and budget. On one hand, that’s enough spending to quickly qualify for a credit card welcome bonus worth hundreds of dollars. But on the other hand, nearly $1,000 in holiday shopping debt is also enough to leave you paying down a balance for years to come.

Here are some things to consider when you’re choosing between cash or credit this holiday season. 

When to Use Cash for Holiday Spending

You may not score as many savings or rewards, but cash can be the better option this season if your main goal is to avoid overspending and debt going into the new year.

Sticking to a Budget

If you already have a problem reining in your credit card spending, you may want to stick to cash or debit this holiday season, says credit expert John Ulzheimer, formerly of FICO and Equifax.

Paying with cash can make it easier to stick to your budget. Rather than making charges you’ll pay off later, cash can help you better visualize exactly how much you have to spend, and how close you are to overspending. 

With your holiday gift list in front of you, you can easily write out the amount you want to spend, then allocate a dollar amount for each person or cause. From there, you can spend your cash according to your budget until it’s gone. 

Avoiding Interest

Cash is also a good option if you already have credit card debt you’re working to pay down. The average credit card interest rate is over 16%, according to data from the Federal Reserve — that’s well above any rewards you can earn with even the best cash back or rewards credit cards. 

If you’re worried about overspending and charging more to a credit card than you can afford to pay off before interest accrues, it can make sense to stick with cash. That way, you can spend your money on holiday gifts until it’s gone, and avoid credit card interest completely. And if you already have high-interest debt, avoid adding to your balance.

Avoiding Issues with New Loans

If you’re planning on applying for or closing on a loan in early 2022, you may also want to think twice about applying for a new credit card or risking a credit card balance. 

FICO and VantageScore’s credit scoring models can react negatively to spikes in credit card debt, Ulzheimer says, “especially if your balances span across multiple cards and get too close to your credit limits.” Both your credit score and debt-to-income ratio (DTI) are major factors lenders consider when determining both whether you qualify for a loan and the terms they’ll extend you. 

While the rewards a credit card offers on holiday spending can be valuable, you can save much more over time by ensuring you get the best terms possible on a new mortgage or auto loan.

When to Use a Credit Card for Holiday Spending

There are plenty of advantages to using a credit card for holiday shopping, too — from savings and added security to purchase protections in case something goes wrong with your order. Just make sure you keep track of how much you charge to ensure you can pay off your balance in full when your statement is due, without taking on high-interest debt.

Prevent Fraud

Whether you’re shopping online or in-stores, using a credit card is one of the best ways to protect yourself against fraud. There’s often little you can do if someone steals cash from your wallet, though you may be protected from fraudulent charges on your debit card. Still, credit cards often offer the most robust protections against fraud.

If you spot a fraudulent purchase on your credit card statement, you can likely dispute the charge with your issuer and have it removed before you lose any actual money. But if someone makes a fraudulent purchase using your bank account, the money may already be gone before you notice. While you can still get the funds returned to your account after reporting, it’ll likely take more time. 

Consumer protections are also considerably better for credit cards than they are for debit cards. The Fair Credit Billing Act (FCBA) limits total liability for credit card fraud at $50 for consumers, according to the Consumer Financial Protection Bureau (CFPB). But if you fail to notice or report the fraud on debit purchases more than 60 days after your monthly statement is sent, you could lose “all the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account.” 

Purchase Protections and Extended Warranties

Many credit cards come with purchase protections as a benefit — which can help you get your money back in certain situations, like if its stolen or damaged within a specific length of time, usually 90 days from the purchase date.

Extended warranties are another benefit your credit card might offer. Extended warranties add additional warranty protection after the manufacturer’s warranty offer expires.

Earning Rewards

Choosing the right credit card can help you save money on holiday shopping and your regular spending throughout the year. Credit expert Gerri Detweiler even compares these rewards to a present you can give yourself.

Plus, a major benefit of cash back credit cards and rewards credit cards are the valuable welcome bonuses you can earn after meeting a certain spending threshold. Depending on your budget, your holiday spending may make it easier to score a bonus worth hundreds of dollars in cash back or points.

Still, there are risks involved in using a credit card, including the potential for long-term debt and high interest charges. “If you carry a balance, the interest costs will easily wipe out the value of those rewards — so make sure you can pay it off in full,” Detweiler says. 

0% APR on Purchases

As you compare the best credit card offers, you may also notice that some extend 0% APR on purchases, balance transfers, or both for a limited time. These offers can help you save on interest as you pay off your charges over time — if you have a plan to pay your balance down completely before the card’s introductory period ends.

Just don’t get too comfortable with the no-interest period, and charge more than you can afford to pay off. Detweiler warns that 0% APR credit cards can make it easy to overspend.

“The best way to use a 0% credit card is to stick to a holiday spending plan so you don’t overspend,” she says. “Then set up automatic payments so you pay off the balance in a few months or at least before the rate goes up again.” 

Learn More externa link icon
Chase Freedom Flex℠

Chase Freedom Flex℠

Editor’s Score: (4.7/5)
  • Intro offer:
    $200
  • Annual fee:
    $0
  • Regular APR:
    15.74% – 24.49% Variable
  • Recommended credit:
    670-850 (Good to Excellent)
  • Apply Now externa link icon At Chase’s secure site
Learn More externa link icon
Citi® Double Cash Card

Citi® Double Cash Card

Editor’s Score: (4.4/5)
  • Intro offer:
    N/A
  • Annual fee:
    $0
  • Regular APR:
    15.49% – 25.49% (Variable)
  • Recommended credit:
    670-850 (Good to Excellent)
  • Learn more externa link icon At our partner’s secure site
Learn More externa link icon
Wells Fargo Active Cash® Card

Wells Fargo Active Cash® Card

Editor’s Score: (4.6/5)
  • Intro offer:
    $200 cash rewards
  • Annual fee:
    $0
  • Regular APR:
    16.49%, 21.49%, or 26.49% Variable APR
  • Recommended credit:
    670-850 (Good to Excellent)
  • Apply Now externa link icon At Wells Fargo’s secure site See Rates & Fees.

Editorial Independence

As with all of our credit card reviews, our analysis is not influenced by any partnerships or advertising relationships.

Best Credit Cards to Use for Holidays This Year

The best credit cards for holiday shopping come with generous rewards, lucrative bonus offers, 0% APR introductory offers, and other perks. Before you apply for any new card though, consider which rewards and benefits will add the most value for you not only during the holidays but on your regular, year-round spending. 

Here are a few to consider:

Chase Freedom Flex

A rotating bonus category cash back card can be great for holiday shopping. During the final quarter of 2021, this card earned 5% cash back on purchases with Walmart and PayPal (up to $1,500 in combined quarterly purchases, with activation). 

In addition to 5% categories that change each quarter, you can also get 5% back on travel purchased through Chase Ultimate Rewards, 5% back on Lyft rides through 2025, 3% cash back on dining at restaurants, including takeout and eligible delivery services, 3% cash back on drugstore purchases, and 1% cash back on all other purchases. 

There’s a $200 welcome bonus after spending at least $500 within three months of account opening, and an introductory 0% APR on new purchases and balance transfers for 15 months (15.74% – 24.49% variable APR thereafter).

Citi Double Cash Card

A flat 2% cash back card is the best option for earning maximum cash back, according to John Taylor Garner, CEO and founder of Card Curator, a credit card rewards app. With this type of card, you’ll essentially get 2% savings on every purchase — and one of the best options available today is the Citi Double Cash Card.

With the Citi Double Cash, you’ll get 2% back for each dollar you spend — 1% when you make a purchase and another 1% when it’s paid off. There’s no intro offer on new purchases and no cash welcome bonus, but there is an 18-month 0% intro period on balance transfers (14.74% to 24.74% variable APR thereafter). This card charges no annual fee, and you can redeem your rewards for a statement credit or as a direct deposit into a bank account.  

Wells Fargo Active Cash® Card

Another great 2% cash rewards option — that also comes with a welcome bonus — is the Wells Fargo Active Cash Card. This rewards credit card will net you a flat 2% cash rewards on your spending and bills, and a $200 cash rewards bonus when you sign up and spend $1,000 on purchases within three months of account opening. 

There’s no annual fee, and you’ll get 0% intro APR on both new purchases and qualifying balance transfers for 15 months from account opening (followed by a variable APR of 16.49%, 21.49%, or 26.49%). This card also lets you redeem your rewards for statement credits, gift cards and more.