The Secret to Smart Shopping

The holiday shopping season this year is shaping up to be a little lighter on good cheer. The National Retail Federation estimates the average American will spend $536.85 on gifts this year, down 2.5% from last year and the first decline since 2008. To stoke sales, retailers will offer bigger discounts earlier. But look out: they also will be hawking potentially costly credit options to shoppers at checkout. It’s worth deciding how you want to pay before walking into the store. Here are three budget busters you’re likely to hear from the cashier:

• Will that be cash or credit?

Cash can be less convenient than plastic. You also will not have a giant financial company behind you should issues arise with any items you purchase. But for those who are serious about limiting their holiday spending, paying in cash is the surest way to stick to a budget.

Now let’s get real. Most people charge it, and the kind of card you use makes a difference. If you’ll pay the bill in full next month, go ahead and whip out your rewards card and don’t give it another thought. The miles, gas or cash back you earn is essentially free. But if you expect to carry a balance, use a low-rate card.

There are some good ones out there. With decent credit–a score of at least 720–you have time to get a 0% introductory card for the holidays. “Zero-percent offers have been aggressive lately,” says John Ulzheimer, consumer-credit expert at CreditSesame.com One standout is the Citi Simplicity card, which has no annual fee and a 0% interest rate on purchases and balance transfers for 18 months. Chase Slate is another winner, with no fee and 0% interest for 15 months.

• Would you like to sign up for our store card?

It’s not that simple. First, you may not be able to get a credit card on the spot if, say, you’ve had identity-theft issues. Second, opening a new credit account will lower your credit score for a year. Make sure you won’t be buying a house or car that soon. Assuming you won’t be, the top consideration is whether you’ll carry a balance.

Some store cards charge interest up to 29%, vs. general-use cards that charge about 15%. Even if the store card offers a reward like 2% cash back, that’s no better than a general-use rewards card you can use anywhere. “There really isn’t much of a case for using a store card on an ongoing basis,” says Anisha Sekar, vice president of credit and debit products at NerdWallet, a website that allows consumers to compare banking products.

Still, if you pay the balance in full, instant credit might make sense. You may get 20% off the day you open an account. That’s meaningful, especially if you’re buying a big-ticket item or can do most of your shopping at one store. But if you carry a balance, the savings could be wiped away, warns Ulzheimer. Among the most attractive store cards, on the basis of rates and rewards, are Costco American Express, Sam’s Club Discover and Target Red card.

• Would you like to add a gift card?

O.K., the cashier probably won’t ask. But gift cards are often prominently displayed near checkout, and the National Retail Federation says 81% of shoppers will buy one this year. These cards are nowhere near as fee-laden as reloadable debit cards. Still, you may pay a $3-to-$5 activation fee at purchase–which makes little sense on, say, a $20 gift card. For small amounts, give cash instead.

Some gift cards, like the U.S. Bank Visa one, cost more to activate if you buy them online or, like the Discover card, deduct $2.50 a month if you haven’t used them in a year. Store-specific gift cards must be used at those stores. If you don’t know where your friend shops, says Sekar, consider an Amazon gift card, which has no activation or inactivity fees. Another favorite is the American Express gift card, which charges $3.95 to activate but has no inactivity fees.