The turkey hasn’t gone cold yet, but whether you like it or not, Black Friday deals are already here. If you’re aiming to get a head start on your holiday shopping this week, consider your payment options carefully.
Before you click checkout online or reach the register in person, you should weigh factors like security, cash on hand, convenience, and your budget when deciding on a payment method.
There are plenty of cashback and rewards credit cards to choose from. However, shopping is not just a competition between credit and cash. The number of options at checkout is growing, both in physical stores and online. In addition to Apple Pay and Google Pay, there are PayPal, Venmo and CashApp.
Not sure which payment method is best for you? We’ll go over the pros and cons of each to help you decide.
There are many reasons to pay by credit card. Most of them offer security features, such as EMV chip or contactless technology (designed to keep your card information safe), protection against fraudulent charges and purchase protection.
Some issuers, such as Citi or American Express, also offer virtual credit card numbers either through their respective apps or through a digital wallet such as Apple Pay or Google Pay. A virtual card replaces your physical card number to be used online. It prevents merchants from saving some of your information and therefore keeps it more secure when you shop online.
Some credit cards also offer rewards every time you spend, such as cash back, travel miles or points. If you need more time to pay off purchases, a 0% introductory credit card may appeal. Additionally, strategic credit card use — such as paying off your balance in full each month — can help boost your credit score. Many even offer perks like purchase protection, which reimburses you if your purchase is damaged or stolen, or an extended warranty, which extends the manufacturer’s warranty by a year or more.
However, the Federal Reserve has voted several times over the past year to raise interest rates, with the average APR hovering above 20%. Credit cards can also be a risky choice if you can’t afford to pay off your entire balance on time. If you don’t have an introductory period, using them to buy expensive items that you can’t pay back within 30 days can lead to interest charges and damage your credit score.
In the most basic sense, paying with a debit card makes it easy – you can only spend what you already have, because the money is taken directly from your checking or savings account. It can make it easier to track your spending, and it can protect you from overspending.
Some debit cards also have security features, such as EMV chips, but generally have fewer protections than credit cards. (If you still insert your debit card instead of using contactless technology, we recommend calling your bank and asking for a card replacement.)
However, debit cards do not offer the same benefits that you get from most credit cards. You cannot earn rewards when you shop, for example. And if you’re short on cash and need to bridge the gap between paydays, a debit card won’t help.
Buy now, pay later
BNPL services such as Afterpay, Klarna, Affirm – and by extension Amazon – allow you to make a purchase now via an installment loan and pay off the balance over time. If you are worried about repaying your balance in full at the end of the month, a BNPL service can offer a much-needed respite. When used strategically, these installment plans can help you stretch your vacation budget with minimal or no interest.
Every BNPL service works a little differently. Some providers offer 0% finance while others charge interest and repayment plans can be spread over 30 days or up to 36 months.
An important difference between BNPL services and credit cards is how the interest is charged. Credit cards charge compound interest – this means that interest accrues not only on the borrowed balance, but also on past interest costs. BNPL interest charging services do not charge compound interest and they let you see the total interest you will pay for the agreed time period in advance.
BNPL options may make sense if you need more time to repay a balance and don’t want to incur high interest charges. Just make sure to compare BNPL repayment plans before committing to one. However, a BNPL plan can entice you to continue a cycle of debt rather than focusing on paying down existing debt like with credit cards.
To find a “buy now, pay later” plan, you can shop through the provider’s app or website. You can also select a BNPL option during checkout on a participating merchant’s website.
Read more: How to book a flight with buy now, pay later
Digital wallets such as Apple Pay, Google Pay, Samsung Pay
Digital wallets allow you to store payment information, such as credit and debit cards, in them for a more secure checkout experience. Some credit cards allow you to generate virtual cards when used with digital wallets, increasing your security when shopping online.
Although these virtual wallets started out as online-only payment options, you can now use Apple Pay, Google Pay and Samsung Pay – the three most popular services – in certain stores, by pulling up the app on your phone.
This can be a good payment option if you are concerned about security. Digital wallets encrypt your financial information and also use tokenization to keep your data safe. They are safest when used online or contactless in store.
If you’re shopping online this Christmas, PayPal can help protect your payment information while offering additional options for gift financing. Technically similar to a digital wallet, PayPal now offers other ways to shop, including QR codes for shopping at participating stores. PayPal also offers its own credit card — the PayPal Cashback Mastercard® — if you want to earn rewards on your PayPal purchases.
PayPal can make sense in a variety of cases: It’s useful if you want to keep your debit card or checking account safe online, if you want to take advantage of credit options, or if you want to try its BNPL service. Here’s how you can use PayPal for holiday shopping:
- Third Party Processor: With the classic PayPal service, you can link payments via your preferred payment source, such as a bank account or debit card, to make shopping safer and more convenient. It’s similar to a virtual wallet, but accepted at more major online retailers.
- PayPal Credit: This payment option works like a credit card, and if approved, you’ll be able to charge online transactions, often with deferred interest charges. You can also apply to get a physical PayPal credit card that you can use in physical stores.
- Pay in 4: Paypal’s BNPL service allows you to split the total cost of your purchase into four equal interest-free installments. The first is paid on the day of your purchase, and the others are billed automatically every two weeks.
Read more: PayPal’s Pay in 4 lets you pay off purchases over time. This is how it works
Owned by PayPal, Venmo is most popular for letting you send money to friends and family, and for easily sharing shared bills when you’re out for brunch or drinks. You can also use the Venmo app to pay for online purchases (with select merchants), the Venmo QR code at stores like Target and Walmart, or apply for a Venmo debit card.
This option may make the most sense if you receive frequent payments through Venmo and want to trade with money in your balance. Venmo also has its own credit card – the Venmo Credit Card.
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