What's the best way to pay for holiday gifts to save money this year?

By Jessica Dickler -

What you buy this holiday season is just as important as the method you use to pay.

In fact, the payment method you choose can go a long way toward helping consumers stick to a budget, save money, and stay out of debt.

"The credit card is the gold standard in terms of rewards and protections for buyers, but the interest rates are a big drawback," said Ted Rossman, senior analyst at research portals Bankrate and Creditcards.com.

Shoppers in a commercial section of San Francisco, California.

Bloomberg via Getty Images

"

," he added.

The rising cost of living is putting a strain on household budgets just as peak shopping season approaches.

That may make paying with credit more attractive, but there may be other options that are better suited to your needs.

"It's all about knowing yourself," Rossman said.

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From credit cards to cash, installment purchases and payment apps, here are some of the best ways to pay this Christmas.

Credit cards

Most Americans use these cards because of the convenience, rewards, and buyer protection programs.

When it comes to holiday shopping,

or rewards cards offer an additional bonus of 2% or more on certain purchases.

"If you have multiple cards in your wallet,

. "

recommends Elly Szymanski, assistant vice president of credit card products at Navy Federal Credit Union.

"For example, a card that allows you to redeem your everyday spending rewards for cash back, gift cards or merchandise may be your best option for holiday shopping," he added.

With the new increase in active interest rates, those of savings accounts will also rise

Nov. 3, 202200:31

"If you've already racked up rewards, now's a good time to cash them in," Szymanski added. 

"At a time when many households are looking to spend less this holiday season,

throughout the year using your credit card," he explained.

Yet credit card interest rates are at record highs and are only going up as the Federal Reserve raises rates in an effort to curb record inflation. 

With APRs approaching 20% ​​or even 30% on some credit cards, racking up any credit card debt will come at a high cost.

[Average credit card interest rates exceed 20%.

This is how you can pay off your debts quickly]

"Credit cards should only be used if they can be paid in full each month," says Chelsie Moore, director of wealth management solutions at insurance financial services group Country Financial.

"

," he added.

"So if you find yourself spending over your budget, you may have to switch to using cash or a debit card."

Debit cards or cash

Fewer consumers are using cash today, but there can be some advantages to buying gifts, according to Rossman, such as being able to make a purchase for a loved one without financial consequences.

In addition, sellers are increasingly promoting cash transactions to avoid credit card transaction fees, so in some cases, paying in cash can get you a reduction of about 3% of the purchase price.

″

,” Rossman said.

"One of the strategies used by merchants is to offer a discount for those who pay in cash."

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Rossman advises shoppers to do the math: The processing fee savings could outweigh what your credit card offers in cash-back rewards.

"Especially if it's a high-value item, this can be very important," he said.

In addition to potential savings,

, other experts say.

Storing cash in an envelope for holiday gifts (or any other spending category) is an old trick for maintaining spending discipline.

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Of course, an actual envelope is not needed.

"Some find it helpful to have multiple checking accounts with smaller amounts of cash, so they can have dedicated debit cards for specific purposes," Moore said.

Buy now, pay later

This season, most consumers will also have the option to buy now, pay later (known as BNPL) when shopping online at retailers like Target, Walmart and Amazon.

Many vendors also have browser extensions (shortcut icons) that can be downloaded and applied to any online purchase.

Then there are the apps, which allow you to use installment payments also when you buy things in person, just as if you were using the Apple Pay app.

The possibility of dividing a purchase without interest in installments offers another clear advantage over credit cards.

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However, studies have also shown that buying in installments could encourage consumers to spend more than they can afford.

Also, some users say that making a return - which is key when it comes to holiday gifts - could be more complicated when using this payment method.

For now, BNPL loans are not subject to the same regulations that apply to credit or debit cards and there are fewer purchase protections, including the ability to dispute a charge if you bought something that didn't meet expectations.

digital payments

Digital payment options are now as ubiquitous as cash or credit cards: even Amazon now offers Venmo (an app for sending and receiving money).

Apps like Apple Pay, Venmo, and Zelle work like cash, but they're also generally free and more secure than even credit cards.

But just like 'buy now, pay later', peer-to-peer payments, known as P2P, have different degrees of consumer protection,

[Returning products to stores may no longer be free]

Trying to get money back into your personal account after it's been transferred to someone else may require more work compared to requesting a refund with a credit card company, which often reverses charges almost immediately and fights on behalf of the client. 

"It's like putting the toothpaste back in the tube," Rossman said.