Should You Use a Credit or Debit Card for Holiday Gifts?
Written by
Martin Dasko
Edited by
Zuri Anderson
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According to a recent Blackhawk Network survey, more consumers are relying on loyalty points and buy now, pay later (BNPL) programs to pay for gifts ahead of the 2024 holiday season.
The survey found that 23% of younger generations planned on paying for gifts with BNPL programs, and only 9% of older generations planned on using this payment method. However, 57% of younger generations plan on paying for holiday gifts with a debit card, while 45% of older generations plan on doing so.
Credit card use is much closer as 54% of younger generations will use them for holiday gifts, and 56% of older generations will do the same.
Should you use a debit or credit card for holiday shopping? In this article, we will review who should use which.
The Case for Using Your Credit Card
The following are reasons for using a credit card over any other payment method, especially debit.
1. Avoid Fraud-Related Issues
“Unfortunately, during the holidays, financial institutions see a significant increase in fraud,” said Arielle Torres, the assistant branch manager at Addition Financial. “If you’re using your debit card and experience fraud, you can potentially have to wait two weeks or so to receive your funds back.”
Using your credit card for major purchases provides you with protection and insurance that doesn’t come with a debit card. Credit cards tend to offer better fraud protection, and they’re not directly tied to your checking account like a debit card is.
Torres added, “There is too much risk with your checking account tied to the debit card with minimal protections.”
2. You Can Earn Rewards Points With Your Credit Card
Torres pointed out that most credit cards nowadays offer rewards on purchases. You can rack up a lot of points by using your card during the holidays when we tend to spend more.
The other bit of good news is that if you’ve been using your rewards credit card throughout the year, you may have earned enough cash back to cover some of those gifts on your shopping list.
Torres also added that if you want to get the most benefit from this approach, you need to pay your balance in full every month. That way, you spend what you would normally spend, earn points and pay no interest.
3. You Can Build Your Credit
“If you’re trying to build or improve your credit score, charging your credit card can have a positive impact provided you make timely payments, and stay under the percentage threshold,” remarked Torres.
Responsible credit card usage is one of the easiest ways to build credit, and you could use this holiday season to boost your credit heading into 2025.
Joe DiSanto, financial advisor and the founder of Play Louder, added the following warning about using credit cards for gifts:
“To truly take advantage of these benefits and use credit cards responsibly, you need a solid understanding of your finances. You should know your income, expenses and be confident that each month you make more than you spend so you can pay off the credit card in full.”
The Case for Using Your Debit Card
Here are scenarios where it would make sense to use a debit card over credit for your holiday shopping:
1. You Haven’t Been Tracking Your Spending
“If you’re tight on money and you’re unsure if you make more than you spend in a month, and you can’t pay off your credit card in full each month, then using credit cards all the time might not be for you,” said DiSanto.
If you haven’t been tracking your spending throughout the year, you may want to stick to a debit card. You don’t want a rude awakening when your credit card bill arrives in January.
2. You Have a History of Credit Card Debt
DiSanto noted that if you have a history of racking up credit card balances and carrying those balances for a long time, you may want to avoid using plastic during the holidays.
If you have a history of poor spending habits, using credit cards for gifts could put you into debt.
3. You Have a Limit With Your Debit Card
“Debit doesn’t allow you to spend more than what’s in your bank account, whereas credit allows you to use up to the top of your credit limit with the credit card company,” said Dawn-Marie Joseph, founder of Estate Planning & Preservation in Williamston, Michigan.
One of the main benefits of using your debit card for purchases is that there’s a limit, and you can’t mindlessly rack up purchases. By using your debit card, you can stay within your holiday shopping budget to ensure you don’t get carried away.
Which Payment Method Should You Use for Holiday Gifts?
Consider Using Cash
Howard Dvorkin, a CPA and chairman of Debt.com, suggested that you use neither.
“Go to an ATM and withdraw cold, hard cash. Use that instead,” he elaborated. “You won’t have to worry about identity theft, and you’ll save way more than you would earn in credit card reward points.
“The reason is simple: It’s really, really hard to hand over cash. You’ll spend much less if you have to hand over multiple bills instead of a single piece of plastic.”
If you want an alternative option limiting your impulse spending, you’ll want to go with cash for holiday shopping.
Assess Your Financial Situation
There’s no one-size-fits-all solution when it comes to personal finance. For example, the survey also found that 2% of older and 13% of younger generations were planning to use cryptocurrency as a payment method or as holiday gifts.
While this may not be a realistic payment method for everyone, there are some who feel comfortable with it. You want to do your best to assess your financial situation to determine which payment method works best for you.
Joseph concluded, “Holiday shopping should always start with a budget. This can simply be done by creating a list and keeping track of who you’ve bought for, and how much has been spent.”
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