Best Ways To Pay For Holiday Purchases

By Mary Pilon

November 25, 2009

You've figured out your holiday gift list. The next question: paper or plastic? Generally, plastic has the edge. While cash will get you discounts at some small retailers, using credit or debit cards makes it easier to return merchandise. Plus, some credit cards carry extra benefits for warranties and repairs.

Before you start charging ahead, here's a look at some of the best ways to pay for different items on your list this winter:

Electronics
Plastic is especially useful here because pricey (and often prone to defects) consumer electronics have high rates of return. Using a card generates another paper trail in case you lose your receipt, or if a retailer is unwilling to take a return. Also, keep in mind:

• Fees: When you're making a purchase, ask about restocking fees charged by some stores for giving refunds and whether the seller allows returns on merchandise that's been opened or defective. If you can, get policies in writing.
• Perks: Card issuers such as Visa and MasterCard may offer extended protection for disputes with merchants. Benefits vary, so call customer service before you start shopping. See whether any of your cards — even retail cards — offer extended repair or installation services.

Apparel
Again, plastic has the edge because of the ease of return. Plus, if an item goes on sale shortly after you buy it, some retailers — including Express and Gap — will credit the difference back to your card or bank account, provided you have the receipt and, often, the unused merchandise. However, there can be deadlines — you may only get a refund if you bring the receipt back within 10 or 14 days after purchase. So ask the retailer. Keep in mind:

• Return Policy: If the recipient is doing the returning and wants cash, some stores will oblige; others will only give in-store credit.
• Store Cards: Some stores are still pushing retail cards, which give you 10% or 20% discounts for opening a new account. But applying for a retail card counts as a hard inquiry on your credit report, which will stick around for 12 months. If the discount is deep on a large purchase, think 20% off or more, applying for a retail card might be worthwhile. Check out retail card offers online before you hit the store to avoid making an impulsive financial decision, Scott Krugman, a spokesperson for the National Retail Federation says. "If you're an avid fan of that retailer," Mr. Krugman says, "it might pay to have that card."
• Extra Benefits: Some retail cards offer additional benefits to card holders, such as early notice on special sales or extra discounts. One card, the Sears Solution MasterCard, offered through HSBC, allows customers to see their credit score through TransUnion. Those who have Citi-issued Sears cards can get their credit scores through TransRisk for free.

Gift Cards
Billions of dollars go unused on gift cards every year and can present a hassle for the recipient. Congress recently passed credit card reform that prohibits some of the more onerous fees and rules surrounding cards, but the law does not go into effect until 2010. As a gift, cash may be a simpler solution. But If you decide to take the gift card plunge, consider:

• Hidden Fees: Watch out for reloadable cards, which behave like prepaid debit cards and may have dormancy fees and fees for loading money or checking balances.
• Use a Card: Pay with plastic and keep the receipt in case the card gets lost. Some major chains will cancel the missing card and reissue a new one, a process made simpler if you can easily recall when and how the gift card was purchased. Some retailers, such as Crate & Barrel, allow recipients to register the card online, making it easier to track. Otherwise, lost gift cards are often treated like cash: gone for good.
• Bid Carefully: Some sites, including eBay.com and PlasticJungle.com, hold gift card auctions, but fraudulent gift card auction sites abound, warns Alison Southwick, a Better Business Bureau spokeswoman. The organization's site, BBB.org, is a good tool for finding out whether a Web retailer is legit.

Holiday Shopping Guide 2009
The Wall Street Journal's columnists offer the best bargains and splurges of the season.

Toys
Toys "R" Us is unrolling layaway programs for the first time this year. Customers leave a deposit of at least 20% of the total price of the order, plus a $10 service fee per order (not per item). Customers get refunds when they cancel their order, but they forfeit a $5 cancellation fee, in addition to the initial $10 fee. Layaway agreements typically have fairly clear terms, but there are a few things to watch out for:

• Fine Print: Before signing up, understand what happens if you miss a payment, change your mind or learn that your item has gone on sale.

Big Box Retailers
Big retailers have dusted off Christmas clubs this year, a promotion rarely seen since the days of rotary phones. It's probably too late to start a club account this year, but file it away for next year. Some other options:

• Sears: With Sears and K-Mart's Christmas Club accounts, shoppers set aside money for gifts, which goes onto a gift card that can only be used at Sears-owned retailers such as Lands' End and The Great Indoors. Sign-up ended on Nov. 14, but given its popularity, Sears says the promotion is likely to be back next year. The store kicks in a 3% bonus for cards activated before the Nov. 14 deadline — so a deposit of $200 buys $206 in store starting Nov. 25, just in time for Black Friday. The money on the card does not expire and requires a minimum balance of $5.
• A New Site: Historically, credit unions have also offered Christmas Club programs. SmartyPig.com, a saving-focused start-up, offers an online version, allowing customers to open a high-yield savings account to sock away money for holiday spending. The money saved can be redeemed as debit or gift card, or transferred into an outside checking or savings account.

Small Businesses
Here, cash may be the way to go this year. Many small stores are giving discounts to customers who pay in cash, because store owners would rather knock a few bucks off the price of an item than pay interchange fees to credit card issuers.

Jon Abt of Abt Electronics in Glenview, Ill., says he's willing to consider offering discounts to some customers who pay in cash at his store, and evaluates offers case-by-case. For customers, "there's no harm in asking," he says.

• One caveat: Because cash flow is tight for many shopkeepers, independent stores may offer less flexible return policies or declare all sales final. (This is especially true for discounted items.)

Large Online Retailers
Before you click "buy," review the return policy. Online retailers are often more flexible than their brick-and-mortar counterparts, but some items on deep discount simply aren't eligible for returns. Also know whether you'll be on the hook for shipping returned items and how long you have to send something back. Keep in mind:

• Amazon.com: This site does not accept returns of items purchased from affiliate merchants that sell through Amazon's site, so look at the merchant rating before you buy. Amazon has some protections for dealing with third-party vendors, like their A-to-Z Guarantee, but processing these refunds can take weeks.
• Portal Check: Many card rewards programs, including those offered by Chase and Bank of America, have online portals to shopping sites that give you extra rewards. Card issuers, such as Visa, offer additional discounts for using their credit or debit cards online, such as free shipping on purchases at BarnesandNoble.com or Overstock.com.

Small Online Retailers
Small online retailers, such as those that sell through Etsy.com, rely heavily on electronic payment systems like PayPal for charging customers,. PayPal can be a good solution if you're worried about the security of your information: You only give your bank information to Paypal, so you don't need to worry about giving your credit card number to a smaller vendor. Some tips:

• Letter Security: If you're on a site where you pay directly by credit or debit, look for the "s" after "HTTP" in the Web site's address, says Mr. Krugman from the National Retail Federation. "The 's' ensures security."
• Research the Site: To vet an online retailer, look at their user rating on a bigger site such as eBay or Amazon, if they sell there. Google the name of the company, keeping an eye out for any consumer forums where the site may have been discussed. You can also run a search the Better Business Bureau's database at BBB.org.

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