More Than a Quarter of Americans Make This Mistake When Buying Holiday Gifts

Be careful how you pay for those holiday gifts.

The holiday season is here and consumers are flocking to malls and online retailers to shop for presents. Unfortunately, a large portion of them are also making a big mistake when they buy gifts.

Is it waiting until the last minute and having to elbow your way through crowds? Paying extra because you didn't compare prices at multiple retailers?

Although those are both common holiday gaffes, the mistake we've seen in a recent holiday gift-buying survey is using the wrong payment method. More than a quarter of Americans aren't using credit cards at all, even though it's the best way to pay for your gifts.

How Americans pay for holiday gifts

According to YouGov, an international polling and market research company, 26% of Americans will only use cash or their debit cards to pay for holiday gifts. Another 19% use those payment methods more often than they use credit cards.

At first glance, this may seem like a good thing. It's best to stay out of debt during the holidays, and one way to avoid holiday debt is to stick to cash and debit cards. When you don't use credit cards, you're less likely to borrow money for your gift purchases.

However, a better way to avoid debt is to set up a holiday budget and keep to it. You can do that with credit cards just as well as you can with cash or debit cards. The difference is that there are also notable advantages to using a credit card for your gift shopping.

Rewards on your holiday spending

The No. 1 reason that you should pay for gifts with a credit card is to earn rewards on those purchases. You're probably going to be spending more money than usual, so you can use that increased spending to maximize your rewards.

Among adults with a holiday budget, the average amount they set aside to cover everything from gifts to entertainment and travel was $708.03. Let's say you're feeling very generous this year and plan to spend all of that money on gifts. Depending on the credit card you use, you could earn anywhere from 1% to 5% back. That means the right card could earn you up to $35.40 in cash back or 3,540 points to use as travel rewards.

There's also a way you can boost those rewards even more. If you apply for a new credit card with a sign-up bonus, you can use your holiday spending to help meet the spending minimum and get that bonus. Imagine you got a cash back card with a $150 sign-up bonus for spending $500 within three months. You could knock out that spending minimum buying gifts, and you'll essentially be getting $150 back on your holiday expenses.

Extra protections for the gifts your purchase

Another important advantage of paying by credit card is that many of them offer complimentary protections on your purchases. Here are the most common examples of this and how they may apply to holiday gifts:

• Purchase protection -- If a gift is damaged or stolen, purchase protection can allow you to file a claim for reimbursement.
• Return protection -- If you or a gift's recipient want to return a gift that the store won't take back, return protection may help you get a refund.
• Price protection -- Find a better price on a gift you purchased? You could get the difference reimbursed.
• Extended warranty coverage -- This automatically extends a product's warranty, which can provide more peace of mind if you're buying any electronics as gifts.

These protections vary by credit card, so you'll have to check the terms of your card to see exactly what it offers.

Using a credit card for all your holiday gifts

Although only 19% of Americans plan to use credit cards for all their holiday gift shopping, it's the smartest payment method. As long as you're careful not to spend more than you were planning to, you'll end up earning rewards on those expenses and potentially getting some extra purchase protections on the gifts you buy.

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