Photographer: Getty Images

How Cash Can Save You Money When You Go Shopping for the Holidays

Here comes Santa Claus but credit cards are nowhere to be seen.

Cash is over. Cash is history. Cash is a pain.

Cash is everywhere

This year, Americans are expected to spend an average of $657 on holiday shopping, up 8 percent from last year and up 24 percent from 2014, according to a study conducted in the fall by financial-planning site NerdWallet. About half those consumers will use cash for these purchases, down from 55 percent last year, but that's still a sizable bunch of merrymakers walking around with wads of the green stuff. A survey released on Wednesday by Student Loan Hero found that over half of respondents plan to eschew credit cards entirely for holiday shopping. 

When spending more than $600, it might seem logical to pull out the credit card and go for the points, but this can lead to overspending. Cold, hard cash is the ultimate budget regulator. Financial data aggregator Bankrate suggests spending a week using only cash to curb pricey shopping habits. Mary Hunt, author of Debt-Proof Living, told NerdWallet that shopping with cash helps prevent credit-card limit abuses.

"If you look at all the different ways to budget, cash is easily the most limiting and simplest way," said Sean McQuay, NerdWallet's resident credit and banking expert. "If you want to make sure you don't spend more than $100, only bring $100."

Oh, come on.

All right. How about exercising a little impulse control and allocating funds in advance that can be used to pay off a credit card, McQuay suggests. That leaves you a little wiggle room (room to fail). Plus, the average credit card offers a 1.5 percent cash-back reward, card providers have elaborate fraud protections in place, and plastic makes returns of unwanted holiday gifts easier. 

If you have the cash on hand and want to use a credit card for those reasons, that's the best of both worlds, but leaving the balance hanging can lead to paying off Christmas purchases in July. About 5 percent of Americans are still paying off last year's holiday shopping credit-card bills. Among shoppers who do plan to use credit cards, 55 percent plan to charge more than $500 to their card, and a third plan to carry the balance for over a month, meaning they'll probably incur interest, according to the Student Loan Hero study.

Age plays a role. Millennials are least likely to use credit cards, followed by Generation X and baby boomers. Sixty percent of millennials plan to pay with cash, and 56 percent will be using a debit card, according to the NerdWallet study, which allowed respondents to list multiple methods for payment they'd be using. 

"There's a generational divide in credit cards in general," McQuay said. "Millennials have fewer credit cards and worse credit than older generations. Millennials have a fear of credit that the recession struck in us deeply, and we want to avoid the mistakes our parents made." 

One thing every generation, no matter its payment preference, agrees on: Holiday shopping is stressful. About a third of consumers feel stressed, and an additional quarter are overwhelmed, NerdWallet found. 'Tis the season! 

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE