The Best Way to Pay for Your Holiday Shopping

The holiday shopping season is officially here. Retailers have decked their aisles with holiday goods, and consumers are making their lists and price shopping twice. But while bargain hunters spend a lot of time searching for rock-bottom prices, it doesn't matter how cheaply you buy a bundle of gifts if you don't pay for them responsibly. So before you don your favorite Christmas sweater, brave the frenzied crowds, and take a few elbows fighting for the best deals, figure out how you'll pay for your holiday goodies.

Big business getting bigger
According to the 2012 Discover Annual Holiday Shopping Survey , shoppers plan to spend about $100 more this holiday season than last year. The average consumer will fork over $838 this year, up from $748 in 2011. Of the 1,000 adult consumers surveyed, half say they plan to spend about the same as they did in 2011, and 23% plan to spend more this year.

Many shoppers will rely on debit cards and cash, but roughly 29% will use credit cards to charge holiday purchases. And, used responsibly, plastic can be your best alternative.

Here are some ways to pay for your holiday finds this shopping season.

Cold hard cash
Obviously, the best way to pay for holiday gifts is with cash. This is especially true if you have poor credit or can't pay off your credit card balance in full the same month the bill arrives. So peel off the Benjamins instead of relying on credit cards if you aren't disciplined with plastic.

Layaway
Thanks to the Great Recession and credit tightening, layaway has made a comeback in recent years. Layaway is when you buy something in installments. You put money down, and the retailer holds the item for you rather than selling it. Then you pay off the item in installments, and when you're done, it's yours. It doesn't require you to take out credit, so it isn't a loan and won't hurt your credit score. But layaway fees are steep, typically 2% to 8% of the item's cost. And if you bail on your purchase, you'll eat the fees.

A swipe of plastic
Credit cards only get you into trouble when you don't pay them back on time and in full. If you have no doubt that you can pay the entire balance shortly after the New Year's champagne has fizzled out, then have at it. But if you can't pay back in full, use cash, consider layaway, or restrain yourself from making the purchase altogether.

If you can responsibly use plastic, here are three ways to reap extra benefits.

1. 0% APR credit cards
Several credit cards incentivize by offering a 0% APR introductory period. Usually, taking advantage of that period can be risky. After all, when the period ends, your interest rate will shoot through the roof. But if you know exactly how long you have before your card starts accruing interest, you can use that time to pay it off entirely. Just make sure you're diligent and disciplined. For example, Citigroup's (NYSE: C  ) Citi Diamond Preferred Card offers a 0% introductory APR for 18 months, and the card boasts no annual fee. 

2. Retailer credit cards
Store credit cards can really work in your favor if you're a loyal one-stop-shopper. For instance, troubled retailer J.C. Penney (NYSE: JCP) offers its Store Card, which rewards users up to 20% off items like apparel, shoes, handbags, and fashion jewelry and 10% off fine jewelry, watches, and home goods.  The catch? Items must be purchased the same day as card approval. 

3. Cards with rewards
You're spending more money during the holidays, so why not get rewarded for doing so? The most popular credit card rewards can be redeemed for travel or cash back.

For travel rewards, consumers continually highly rate Capital One Financial's (NYSE: COF  ) Venture card. With no annual fee for the first year, the card offers generous miles on purchases and 10,000 bonus miles when you spend $1,000 within the first three months. You can fly on any airline at any time with no blackout dates. Better yet, there's no limit on the miles you can earn, and miles don't expire.

If you prefer cash rewards, Discover Financial Services' (NYSE: DFS  ) Discover card offers a 5% bonus for department store and online shopping through the end of the year. And JPMorgan Chase's (NYSE: JPM  ) Chase Freedom  card is chock-full of cash rewards, including 1% cash back on all purchases. It also bestows you 5% back on categories that rotate every three months, with this quarter's focus being hotels and airlines. The Chase Freedom card also grants 10% cash back when you shop online at select merchants.

In fact, 35% of shoppers will use their already accrued credit card rewards to supplement their holiday shopping this season. So the cash rewards you rack up this year can be used for next year's holiday purchases.

Foolish bottom line
The gift of financial sanity is the best present you can give yourself this holiday season. Sure, it's not as fun or flashy as that constantly-daydreamed-about item on your list to Santa. But it's a gift that'll last long after you've packed up the holiday decorations and sweated off the holiday pounds.

J.C. Penney has a long and full of colorful history. Incorporated in 1913, the company has suffered alongside the nation through many recessions over the last hundred years. Now the company faces unprecedented challenges and struggles to regain profitability. Investors have to wonder if this company's centurylong story is about to come to an end? In order to help you answer that question, we've compiled a premium research report with everything you should know about J.C. Penney. Simply click here to get started.


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  • Report this Comment On November 21, 2012, at 12:23 PM, DR1P wrote:

    You have to make 100% sure of the rules of those 0% APR periods. I was having solar panels put on my house... a major purchase. I was told they could be financed with a 12 month 0% APR credit card from Fifth Third. I applied for the card to make sure I would get enough credit for the purchase before the solar company applied to the power company for the rebate (it had to be pre-approved during the annual application period).

    When the panels were finally installed a couple of months later, I checked with the bank and found out the 12 months was the first 12 months of the card... not 12 months from the purchase date. I received an e-mail from the bank rep I had been in contact with and was told that the ballance had to be paid off approximately 12 months after I got the card.

    A couple of months before the introductory period was due to end, I checked with the bank and found out, after conflicting explanations, that the introductory period was actually 12 billing cycles from when the card was approved and was about 11 months from when I had actually received the card. I had to rearrange a few things, but I paid it off before the deadline.

    When I had new windows installed a few years earlier, I had a 36 month 0% interest card from Wells Fargo. The 36 months started when the windows were sctually installed and went for an actual 36 months. Not all 0% APR periods are created equal.

  • Report this Comment On November 23, 2012, at 9:10 PM, aleax wrote:

    The problem with paying cash if you have bad credit is that your credit ain't ever gonna get better that way!

    To enhance your credit score you do have to regularly get into such revolving debt AND pay it off promptly.

    Crazy, it looks to me (a European through and through, though living in and loving the US;-), but there you are -- it's the American Way!-)

  • Report this Comment On November 23, 2012, at 9:46 PM, TimSauer wrote:

    Cash is the best way to PAY FOR STUFF YOU CAN AFFORD. If you can't pay in cash for presents your probably shouldn't be buying them anyways.

  • Report this Comment On November 26, 2012, at 12:45 AM, Daveoffv wrote:

    I am surprised you don't include the American Express rewards card as one of the best. You get cash credited to your account and don't have to worry about airline miles you may never use.

  • Report this Comment On November 26, 2012, at 9:11 AM, pondee619 wrote:

    " But layaway fees are steep, typically 2% to 8% of the item's cost." Don't these fees put credit card rates to shame? How can any fool justify paying 2% to 8% for spreading you payments out six weeks or so? Doesn't 2% for six weeks equal a 17%+/- annual rate? Might as well put it on the card and pay it off in February, no?

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