holiday shopping gearing up, a plethora of stressful
decisions includes not only what you buy and how much
you spend but how you pay.
credit card, debit card, prepaid card, electronic and
mobile payment, personal check, layaway,
deferred-interest financing ó the choices seem
the best way to pay during the holidays to ensure you
are paying wisely and protecting yourself against
identity theft and unnecessary debt?
short answer is that no one payment method is a clear
winner, but using credit cards and paying off the
monthly balance probably has the most advantages, as
long as credit cards are not your Spending Smart
No. 1 choice is definitely going to be a credit
card," said Paul Stephens, director of policy and
advocacy at the Privacy Rights Clearinghouse, adding
that cash, at least for smaller purchases, would be his
Americans apparently disagree, at least for in-store
purchases on Black Friday. A recent survey by
Bankrate.com found that 38 percent plan to pay with
cash, 34 percent with debit cards and 24 percent with
credit cards. Among millennials, just 11 percent
preferred credit cards.
cards. Some people despise credit cards for the
potentially pricey debt risk they present, but if youíre
OK with them, theyíre hard to beat on a number of
criteria. Theyíre great for security. While credit
card numbers are easy to steal, your liability for
fraudulent purchases is very limited and almost always
zero. Most importantly, if fraud happens, you havenít
laid out any of your money yet, so itís the bankís
money at stake, not yours.
include helping to build a credit history, and with
reward cards, earning money back. Little-known, or
oft-forgotten, benefits include extended manufacturer
warranties on products bought with the card. American
Express cards have the best policies for such
warranties, according to a recent study by CardHub.com.
course, the key is to use them as charge cards, not
credit cards, paying off the balance each month and not
incurring ridiculous finance charges, late payments or
over-limit fees. Then you get all the goodies and none
of the downside.
strategy: Put all holiday spending on a separate credit
card with a low limit, and commit to paying it in full
or, at the least, repaying that debt in the first
quarter of 2015. That will not only allow you to avoid
paying excessive interest, but will prevent holiday
spending from being mingled with existing debt.
cards. These are great for controlling spending; itís
like paying with cash you already have in your checking
account. But debit cards are lousy for security because
federal protections arenít as strong as for credit
cards ó although card companies, such as Visa and
MasterCard, say they wonít hold you liable for fraud.
The main drawback is that if fraud occurs, your money is
actually missing from your bank account, unlike with a
credit card. And by federal law, banks can take up to
two weeks to replace your money, potentially putting a
stranglehold on your cash flow.
many people, particularly during the holidays, this can
be a shock to their finances," Stephens said.
"Weíve been preaching not to use debit cards for
many years ... before point-of-sale breaches were
becoming a daily occurrence."
cards. Many consumers use reloadable prepaid cards as an
alternative to traditional checking accounts. The cards
typically are loaded with funds by the consumer or a
third party, such as an employer. Consumers can use the
cards to make payments, store money, get cash at ATMs,
receive direct deposits and send money to other
Consumer Financial Protection Bureau recently proposed
enhanced consumer protections for prepaid cards, which
for many have taken the place of debit cards and whose
use is growing exponentially. But proposed protections
would not be in place for this holiday shopping season.
are the main downside of prepaid cards. "You really
need to look at the terms very carefully," Stephens
advantage is you canít overspend or incur interest
you opt for prepaid cards, make sure they are the type
you can register. If a card is lost or stolen, you have
a way to restore the money, Stephens said.
little-known downside of prepaid cards: If you attempt
to return merchandise, many retailers will issue the
refund only to the same card. If itís a prepaid card,
you might have disposed of it already. "So if you
use a prepaid card, make sure you keep it,"
Reports rated the Bluebird card by American Express and
Wal-Mart as best. It comes without a monthly fee, no
inactivity fees or fees for calling customer service,
along with a bill-paying feature. It also liked the
Chase Liquid Visa and American Express Serve.
apps. Smartphone apps and electronic payment systems
arenít really separate forms of payment, but Apple
Pay, PayPal and Google Wallet are different ways to pay.
For security and debt risk, it depends on what the
underlying payment method is, a credit or debit card,
for example. "You certainly donít want it to be
billed to your cellphone account because that gives you
virtually no consumer protections," Stephens said.
And people tend to not safeguard their phones like their
wallets, so at least use a security code on your phone
or activate its fingerprint reader. Logging out of
payment apps every time and requiring an additional
password for the apps is a good idea, Stephens said.
financing. Thatís a fancy term for enticing retailer
come-ons such as "No-interest financing until
2017!" Of course, thereís a gotcha. If you donít
pay in full by the end of the promotional period,
high-rate interest is applied retroactively to the
entire original balance. Consumer Reports voted
deferred-interest credit cards as 2014ís "worst
idea" in credit cards, and its advocacy arm has
called for a ban on them, calling them "dangerous
checks. Hardly a favored form of payment for many people
anymore, checks are not only inconvenient but a security
risk. Bank account and routing numbers are printed on
the check, along with your name and possibly address.
using checks doesnít incur debt and, with the check
register, youíll have an up-to-the-minute record of
your spending and money available, notes Gail
Cunningham, spokeswoman for the National Foundation for
Credit Counseling. Another downside? "People in the
line behind you will give you dirty looks," she
said. If you must write checks, use a gel pen that will
prevent a fraud called check-washing.
Money just works, doesnít create debt, controls
overspending and doesnít lead to identity theft. The
main risks of cash are that you will be mugged or lose
the money, itís impractical to use for expensive
items, you canít use cash online and you may incur ATM
Layaway offers few upsides if you can use a credit card
instead. Rather than paying layaway fees and making
several trips to the store to make installment payments,
you might as well periodically stash money under your
mattress and purchase the item when you have enough. An
exception might be using layaway for a gift item that
might sell out before you have the cash to buy it.