What’s the Safest Way to Pay for Holiday Shopping? Credit Cards, Experts Say

In the final push to finish up my holiday shopping, I love the convenience of using a credit card instead of lugging around cash or keeping track of debit transactions. Plus, I can earn rewards on my purchases. But, there’s another reason I use credit cards for practically everything I pay for: their built-in consumer protections. 

All of my rewards and travel credit cards come with $0 fraud liability protection, and federal law adds another layer of protection that makes credit safer than debit cards or cash. Those safety features can come in especially handy when I’m in a rush and maybe not paying as close attention during these last hectic days of the holiday shopping season.

Why you should use a credit card instead of a debit card or cash

One of the biggest perks of using credit cards is their increased protection against fraud.

While federal law limits liability to $50 if you report your credit card missing or stolen after someone uses it, credit cards tend to have a $0 fraud liability coverage. 

Comparatively, if your debit card was lost or stolen and used for fraudulent charges, you could be on the hook for up to $500 if you reported your card lost two or more days after you learned it was gone (but within 60 calendar days after your statement is sent to you). 

I wish I could say that’s where the trouble with debit cards ends. But if you report loss or fraud on a debit card more than 60 calendar days after your statement is sent to you, you could lose any money that was stolen from your linked debit accounts, according to the Federal Trade Commission.

Using a debit card as your primary payment method could lead to more problems if it’s stolen, according to money-saving expert Andrea Woroch. If someone has your debit information, they could steal money from a connected checking account. The money in your account could be tied up while the issue is resolved.

But your losses are limited if your credit card is stolen. 

“If a thief does use your credit card, your actual money isn’t tied up while the credit card company reviews the activity like it would be with cash in your bank account when using a debit card,” Woroch said. 

Paying with cash or debit means missing out on the added protection benefits your card offers, which could include extended warranties, protection against damage or theft, or both.

“Some credit cards also offer extended return windows, meaning you can process a return through the credit card past the store’s eligible return time,” she said.

Another reason to use a credit card rather than cash or debit is the rewards you can earn on holiday shopping and bills. Your holiday shopping list could earn you a generous credit card welcome bonus before the end of the year, and you can earn cash back, flexible rewards or travel points for each dollar you spend.

Cash doesn’t have any protection or rewards at all. If you drop a wad of money or someone steals your cash, you are completely out of luck.

What’s the danger of using a credit card for holiday shopping?

Woroch said the biggest risk that comes with using a credit card is the potential to overspend since you can technically spend any amount up to your credit limit. 

“The buy now, pay later mentality can trap you into spending more and then racking up a balance you can’t afford to pay off,” she said. Any balances you don’t pay off by your next billing cycle will accrue interest. Interest charges could wipe out any value you’d see from rewards.

Racking up charges on your credit card can also potentially hurt your credit score. Your credit utilization — how much of your credit you’re using compared to what’s available — can impact your score.

So even if you pay off your card every month, maxing out your credit card can ding your score. And if you wind up making late payments or miss a payment entirely, that could harm your credit score even more.

Credit cards make it easy to sign up for subscription services you might later forget about, which could become a drain on your finances. Forgotten subscriptions could turn into gray charges, or charges on your credit card that you don’t recognize but aren’t fraudulent.

Smart ways to use a credit card for your holiday purchases

If you’re planning to use your card for your holiday shopping this year, take these tips with you to the store.

• Use a card with purchase protection. Your gifts will be covered against theft or damage for 90 to 120 days, and should something happen, you could be reimbursed for the cost.
• Stick to your budget better. Credit cards can simplify tracking your expenses. You can set alerts on your card usage, which can help you maintain the budget you set for yourself.
• Only charge what you have the cash to pay for. Only charge purchases you know you can pay off right away. Otherwise, today’s high credit card interest rates will wipe out most of the benefits of paying with plastic.
• Earn a credit card welcome bonus if it works with your budget. If you already have your budget set and are ready to start shopping, Woroch said to look into holiday shopping credit cards that have welcome bonus offers. There are a plethora of cards that offer bonuses of $200 or more when you spend $500 within three months of opening the account.
• Use credit card shopping portals to earn more rewards. Credit card shopping portals from issuers like Chase and all the major airlines let you earn more points or miles when you shop with participating stores.
• Apply for an intro 0% APR credit card. Woroch also points to 0% APR credit cards as a valuable tool for holiday shopping. If you go this route, she suggested coming up with a specific repayment plan to ensure you pay off those holiday expenses before the 0% APR intro period ends.

Tips to avoid overspending this holiday season

You can avoid overspending and credit card debt by setting a spending budget and sticking to it. 

For example, if you want to spend a total of $700 on holiday gifts this year and you have a specific number of people to buy for, divide that amount by the number of people on your list and set a specific gift limit for each person.

One way to ensure you don’t overspend is by enabling card alerts and notifications, according to credit card project manager Kim Chambers of Georgia’s Own Credit Union. That way, your balance won’t spiral without you realizing what’s happening.

In terms of rewards, Chambers recommended redeeming cash back and other rewards to cover holiday spending.

If you have some cash back or points built up before you start holiday shopping, you can redeem it for merchandise or gift cards to cut down on how much you actually spend on the holidays this year.

My go-to cards for holiday shopping

Any rewards credit card can be useful for holiday spending, but I certainly have my favorites. Here are some cards I’m using for my end-of-year gift list this year:

• The Capital One Savor Cash Rewards Credit Card*: I recently applied for this card to earn the welcome bonus and its 3% cash back on all our streaming services. The version of this card for excellent credit also has an intro 0% APR offer for purchases and balance transfers. It comes with standard fraud liability protection, security and purchase alerts when a payment is made or unrecognized, and it has virtual card capabilities — all of which would make your holiday shopping more safe.
• Costco Anywhere Visa® Card by Citi*: We do almost all of our grocery shopping at Costco, but we also buy all kinds of gifts here. The Costco Anywhere Visa® Card by Citi doesn’t charge an annual fee, and it earns 4% cash back on up to $7,000 spent on gas and EV charging each year (then 1% back), 3% back on restaurants and eligible travel purchases, 2% back on Costco and Costco.com purchases, and 1% back on other spending. It also includes damage and theft purchase protection.
• Chase Sapphire Reserve®: I frequently use Shop through Chase in order to earn bonus points. I am always trying to boost my Chase rewards balance since these points can be redeemed for statement credits, gift cards, travel through Chase and even 1:1 point transfers to Chase airline and hotel partners. It includes a slew of protections including both zero liability and fraud protection. The latter monitors your account for any unusual activity and will alert you via text or email if something is detected.

*All information about the Capital One Savor Cash Rewards Credit Card and the Costco Anywhere Visa Card by Citi has been collected independently by CNET and has not been reviewed by the issuer.