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Shoppers have more payment options at checkout than ever before.
The payment method you choose can go a long way toward helping you stick to a budget, save money and stay out of debt.
The rising cost of living is straining household budgets just as the peak shopping season kicks into high gear.

What you buy this holiday season is just as important as how you buy it.
In fact, the payment method you choose at checkout can go a long way toward helping you stick to a budget, save money and stay out of debt.

“The credit card is the gold standard in terms of rewards and buyers protections, but the interest rates are a huge drawback,” said Ted Rossman, senior industry analyst at Bankrate and Creditcards.com. “The biggest thing I would worry about is debt.”
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The rising cost of living is straining household budgets just as the peak shopping season kicks into high gear. That can make paying with credit more appealing, but there may be other options that fit your needs even better.
“It comes back to knowing yourself,” Rossman said.
From credit cards to cash, installment buying and payment apps, here’s a breakdown of some of the best ways to pay this holiday.

1. Credit cards

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Most Americans rely on credit thanks to convenience, rewards and buyer-protection programs. When it comes to holiday shopping, cashback or rewards cards offer an added bonus of 2% or more in certain categories.
“If you have multiple cards in your wallet, use the one that will give you the most value in return on the purchases you’re making,” said Elly Szymanski, assistant vice president of credit card products at Navy Federal Credit Union. “For instance, a card that allows you to redeem rewards on your everyday spend for cash back, gift cards or merchandise may be your best bet for holiday shopping.” (CNBC’s Select has a full roundup of the best cards for holiday shopping.)
If you’ve already banked rewards, this is a good time to cash them in, Szymanski added. “With many households looking to spend less this holiday season, one of the best ways to save is take advantage of the points and rewards you’ve accumulated over the course of the year by using your credit card.”

Credit cards should only be used if you can pay them in full each month.

Chelsie Moore
director of wealth management solutions at Country Financial

However, credit card interest rates are at record highs and only heading higher as the Federal Reserve hikes rates in an effort to curb record high inflation. With annual percentage rates close to 20% or even 30% on some retail cards, racking up any credit card debt will come at a high cost. (In debt? Take these steps to help trim high-interest account balances.)
“Credit cards should only be used if you can pay them in full each month,” cautioned Chelsie Moore, director of wealth management solutions at Country Financial. “Utilize them as if the cash is coming directly out of your checking account.
“So, if you see yourself spend beyond your budget, you may need to switch to utilizing cash or a debit card.”

2. Debit cards or cash

Andrew Kelly | Reuters

Fewer consumers use cash at all these days, but there may be some advantages when it comes to gift buying, according to Rossman, including being able to make a purchase for a loved one under the radar.
Also, merchants increasingly are promoting cash transactions to avoid credit card transaction fees, so, in some cases, paying with cash can shave roughly 3% off the purchase price.
“There’s been a backlash about credit card processing fees,” Rossman said. “One of the levers merchants pull is offering a cash discount.”
Rossman advises shoppers to do the math: Saving on the processing fee could exceed what your credit card offers in cashback rewards. “Especially if it’s a big-ticket item, that could really add up,” he said.

In addition to the potential savings, relying on cash or a debit card can help you stick to a budget, other experts say. Stashing cash in an envelope for holiday gift buying (or any other spending category) is an age-old hack to stay disciplined in your spending.
Just recently, the envelope-budgeting method made a comeback on TikTok in the form of “cash stuffing.”
Of course, you don’t need an actual envelope. “Some find it helpful to have multiple checking accounts with smaller amounts of cash, then you can have debit cards dedicated for specific purposes,” Moore said.

3. Buy now, pay later

This season, most consumers will also have the option to buy now, pay later when shopping online at retailers like Target, Walmart and Amazon, and many providers have browser extensions, as well, which you can download and apply to any online purchase. Then there are the apps, which let you use installment payments when buying things in person, too — just like you would use Apple Pay.
The ability to spread out a purchase with no interest offers another distinct advantage over credit cards. However, studies have also shown that installment buying could encourage consumers to spend more than they can afford. Plus, some users say making a return — which is key when it comes to holiday gifts — could be trickier using this payment method.
For now, BNPL loans are not subject to the same regulations that apply to credit or debit cards and there are fewer purchase protections, including the ability to dispute a charge if you bought a good or service that wasn’t delivered as promised.

4. Digital payments

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Digital-payment options are now nearly as ubiquitous as cash or credit cards — even Amazon now offers Venmo.
Apps like Apple Pay, Venmo and Zelle work like cash but also are both generally free and more secure than even credit cards.
But like BNPL, peer-to-peer payments, known as P2P, have varying degrees of consumer protections, which could cause an issue when it comes to getting a refund.
Trying to get money back into your personal account after it’s been transferred to someone else may require more work compared to requesting a refund with a credit card company, which often reverses charges almost immediately and fights on your behalf. 
“It’s kind of like getting the toothpaste back in the tube,” Rossman said. 
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Inflation is impacting most consumers’ holiday shopping plans.
Roughly half say they will buy fewer things this year due to higher prices.
Still, households will spend $1,455, on average, on holiday gifts.

Inflation is weighing heavily on the holidays this year.
Roughly half of shoppers will buy fewer things due to higher prices, and more than one-third said they will rely on coupons to cut down on the cost, according to a recent survey of more than 1,000 adults by RetailMeNot.

Though the study found many consumers are also eager to get an early start on seasonal shopping, that surge is largely driven by concerns about affordability and money-saving strategies, other reports show.
“Inflation is, by far, the biggest issue for households this year,” said Tim Quinlan, senior economist at Wells Fargo and author of its 2022 holiday sales report.
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Household finances have taken a hit, with a lower savings rate and declining real wages, which could slow holiday sales, Quinlan said.
“The bottom line is, with inflation remaining a headache, dollars aren’t stretching as far, and most consumers will still be looking for bargains,” Quinlan said.

A separate report by BlackFriday.com also found that 70% of shoppers will be taking inflation into consideration when shopping this holiday season, and even more will be on the lookout for deals.

People are trying to economize and make the most of what they have.

Cecilia Seiden
vice president of TransUnion’s retail business

Roughly 25% of consumers said they would opt for cheaper versions or more practical gifts, such as gas cards, according to TransUnion’s holiday shopping survey.
“People are trying to economize and make the most of what they have,” said Cecilia Seiden, vice president of TransUnion’s retail business.
Still, households will shell out $1,455, on average, on holiday gifts, in line with last year, a separate retail report by Deloitte found. 

How to avoid going into debt this holiday

Shoppers hold hands at the Willow Grove Park Mall in Willow Grove, Pennsylvania, November 14, 2020.
Mark Makela | Reuters

“Remember to not put yourself in debt over holiday shopping,” cautioned Natalia Brown, chief client operations officer at National Debt Relief. “Debt prevents people from reaching their financial goals — like building an emergency fund, buying a home and saving for retirement.”
Holiday spending could come at a higher cost if it means tacking on additional credit card debt just as the Federal Reserve raises interest rates to slow inflation, Quinlan added. 
Annual percentage rates are currently near 19%, on average, an all-time high, according to Ted Rossman, a senior industry analyst at CreditCards.com.
That will leave consumers worse off heading into 2023, Quinlan said.
“In many ways we view this year’s holiday shopping season as the last hurrah,” he said.
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The prize marks the largest ever in lottery history.
The IRS will scrape 24% — or $239.4 million — off the top for federal tax withholding if the winner chooses the cash option of $997.6 million.
However, California does not tax lottery winnings.

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California does not tax lottery winnings

While the IRS will scrape 24% — or $239.4 million — off the top for federal tax withholding, California does not tax lottery winnings, according to the state’s lottery winner’s handbook. So if the winning ticket holder lives in the Golden State, no state or local taxes on the windfall would be due.

However, if the winner lives elsewhere, their state of residency would determine what they owe in their jurisdiction. Those levies range from zero to more than 10%, depending on the state.

At the federal level, more than the initial $239.4 million withheld would likely be due at tax time because the top federal rate is 37%.
Unless the winner was able to reduce their taxable income — i.e., by making large charitable donations — another 13%, or $129.7 million, would be due to the IRS. That would be $369.1 million in all going to federal taxes, leaving the winner with $628.5 million.
The Powerball jackpot has reset to $20 million for its next drawing, scheduled for Wednesday night. Mega Millions’ top prize, meanwhile, is $154 million for its Tuesday night drawing.

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The drawing for a record Powerball jackpot topping $2.04 billion was held Tuesday morning after a delay because of issues with just one state processing ticket sales.
The winning numbers were white balls 10, 33, 41, 47, 56 and red Powerball 10. The Power Play multiplier was 2X.
Powerball’s latest drawing had been scheduled for late Monday night but was delayed because of the problems in one state, which was not identified by the Multi-State Lottery Association.
The last winning ticket in a Powerball drawing was Aug. 3, for a jackpot of nearly $207 million. There have been three drawings per week since then.

Powerball sign and lottery tickets are seen at a 7-Eleven store in Milpitas, California, on Nov. 7, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images

The drawing for a record Powerball jackpot topping $2.04 billion was held Tuesday morning after a delay because of issues with just one state processing ticket sales. The headline prize climbed beyond its earlier $1.9 billion estimate.
The winning numbers were white balls 10, 33, 41, 47, 56 and red Powerball 10. The Power Play multiplier was 2X.

The drawing at the Florida Lottery studio in Tallahassee, at 8:57 a.m. ET, came after a delay of more than 10 hours. 
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Powerball’s latest drawing had been scheduled for late Monday night. But that was delayed because of the problems in a single state, which was not identified by the Multi-State Lottery Association.
In a statement Tuesday morning before the draw occurred, the association said, “Currently, one participating lottery is still processing its sales and play data.”

“Powerball requires all 48 participating lotteries to submit their sales and play data prior to the winning numbers being selected. Once Powerball receives the outstanding submission, the drawing can proceed,” the group said.
“Due to the length of the draw delay, it is likely that we will not know the official results of the Powerball drawing until Tuesday morning,” the statement said.

“Players should hold onto their tickets.”
Meanwhile, the official Powerball website had featured the notice: “Results Pending.”
If someone won the drawing, the cash payout of the jackpot — the largest ever in lottery history — the cash payout would top $929 million before taxes.
The last winning ticket in a Powerball drawing was Aug. 3, for a jackpot of nearly $207 million. There have been three drawings per week since then.

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As workplace 401(k) plan administrators such as Fidelity Investments and ForUsAll begin to offer cryptocurrency as an alternative investment asset to employee investors advisors urge caution.
“As volatile as it is, it has the potential for huge upswings,” said Ivory Johnson, a CFP and founder of Delancey Wealth Management in Washington.
Many plans cap crypto at 5% of investments. The younger investors are, the more exposure to crypto financial advisors would agree to when it comes to retirement savings.

Luke Chan | E+ | Getty Images

Cryptocurrency is starting to pop up as an alternative asset class in some 401(k) plans. Retirement savers may be wondering if it’s wise to invest.
“Making it this easy and accessible has both pros and cons [for investors],” said Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York.

Fidelity Investments and ForUsAll, which administer workplace retirement plans, began offering cryptocurrency such as bitcoin to 401(k) investors within the past few months. They appear to be the first companies to do so.
However, that doesn’t mean all 401(k) plans will offer crypto.
Employers must use an administrator that grants access and then opt to make crypto available to workers. Some may hesitate after a U.S. Department of Labor warning this year to exercise “extreme care” before adding crypto alongside more traditional stocks and bonds funds.
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The regulator identified speculation and volatility, as well as the challenge for 401(k) investors to “make informed investment decisions,” among its primary concerns.

“As volatile as it is, it has the potential for huge upswings,” said Ivory Johnson, a CFP and founder of Delancey Wealth Management in Washington, referring to cryptocurrency.
Bitcoin, for example, peaked a year ago at nearly $69,000, more than doubling from the start of 2021. Its current price, at around $21,000, is down 70% since then; the crypto market overall has lost $2 trillion in value from its peak.
Despite that pullback, bitcoin prices have still nearly tripled since the beginning of 2020.

Crypto’s upside could benefit buy-and-hold investors, especially at a time when many Americans are behind on retirement savings, said Johnson, a member of CNBC’s Advisor Council. The con: Most people make knee-jerk reactions and sell in the short term, he added.
Unlike holding crypto in a taxable investment account, crypto returns don’t incur capital-gains tax if and when investors sell their 401(k) crypto holdings, Johnson said.
But crypto’s upside carries greater risk, too.
“You might be wrong,” Johnson added of a speculative bet in crypto. “People make decisions based on Twitter, they hear something that’s compelling … and they go all in and put 30% of their retirement money in bitcoin.
“You’ve [potentially] made a bad situation exponentially worse,” he said.

How to pick a crypto allocation

Financial advisors recommend investors allocate only a small piece of their portfolio — generally no more than 5% — to crypto.
Investors with savings outside their 401(k) plan should consider their crypto allocation as part of their overall investable net worth, said Boneparth, also a member of CNBC’s Advisor Council.
For example, someone with $50,000 in a 401(k) plan and $100,000 in a separate taxable brokerage account would generally allocate up to 5% of that $150,000 total to cryptocurrency, he said.
A young investor in their 20s may be well-suited for a 5% allocation while someone in their 50s who’s nearer to retirement age should likely scale back that exposure, Johnson said.

The investment rules don’t just go away just because there’s a digital asset to invest in your account.

Douglas Boneparth
founder of Bone Fide Wealth

Investors may need to rebalance their allocations over time as crypto outpaces or lags returns elsewhere in their portfolios.
“The investment rules don’t just go away just because there’s a digital asset to invest in your account,” Boneparth said. “Risk and reward, that relationship never goes away.”
Fidelity and ForUsAll have put some safeguards in place to try limiting exposure.
For example, Fidelity disallows investors from putting more than 20% of their 401(k) savings into its Digital Asset Account, though employers can choose to reduce that cap. The account holds bitcoin and short-term, cash-like investments to help facilitate daily transactions.

ForUsAll limits allocations to 5%. It offers six cryptocurrencies — bitcoin, ethereum, solana, polkadot, cardano and USDC — and soon intends to add more. Within the 50 or so retirement plans that have made crypto available, 12.5% of investors are investing and allocate 4% of their portfolio to crypto, on average.
“To be at 0% [of your portfolio], you’re likely going to be 100% wrong,” said Ric Edelman, founder of the Digital Assets Council of Financial Professionals, in September at the Future Proof wealth festival in Huntington Beach, Calif.
He also advised investors against putting a significant chunk of their portfolio in cryptocurrency.

Stick with bitcoin, ethereum for now, advisors said

Investors shouldn’t jump blindly into crypto just because it’s available, financial advisors said. As with other investments, they should generally understand what they’re buying.
The Labor Department cautioned that employers may be sending the opposite message to investors by adding crypto alongside traditional funds.
When employers offer crypto in a 401(k), “they effectively tell the plan’s participants that knowledgeable investment experts have approved the cryptocurrency option as a prudent option for plan participants,” the agency wrote. “This can easily lead plan participants astray and cause losses.”

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Investors who opt to save some retirement money in cryptocurrency are likely also best-suited by sticking with bitcoin and ethereum, at least for now, advisors said. These are the largest cryptocurrencies and it’s “exponentially more difficult” to speculate with anything else, Boneparth said.
“I think you’ll see, more and more, bitcoin becoming a risk-on asset like stocks,” he said.
“We’re seeing it mature,” he added. “There are many question marks that remain.”

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The Powerball jackpot has been climbing since Aug. 3 and ranks as the largest lottery prize ever.
The cash option — which most jackpot winners choose over an annuity — is $929.1 million.
A 24% withholding would shave $223 million right off the bat, and more would likely be due to the IRS at tax time.

Mark Ralston | Afp | Getty Images

Whoever is the next jackpot winner in Powerball will be looking at the largest lottery prize ever awarded.
The tax bill will also be pretty impressive.

After no one hit all six numbers drawn Saturday, the Powerball jackpot headed higher. For Monday night’s drawing, it’s now an estimated $1.9 billion if taken as an annuity spread over three decades and $929.1 million if received as an upfront, lump sum of cash — that’s nearly a $1 billion difference.
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These days, the annuity option is bigger than it previously was, relative to the cash option, due to the higher interest rates which make it possible for the game to fund larger annuitized prizes, according to the Multi-State Lottery Association, which runs Powerball. The cash option, however, is driven by ticket sales.

The top prize has been rolling higher through thrice-weekly drawings since Aug. 3, when a ticket bought in Pennsylvania matched all six numbers drawn to land a $206.9 million jackpot. 

For starters, $223 million would be withheld

So what would that tax bill be if you were to hit the motherlode?

Assuming you were like most winners and chose the cash option, a 24% federal tax withholding would reduce the $929.1 million by $223 million.
However, more would likely be due to the IRS at tax time. The top federal income tax rate is 37% and this year applies to income above $539,900 for individual tax filers and $647,850 for married couples. Next year, the top rate is imposed on income above $578,125 (individuals) and $693,750 (married couples).
This means that unless you were able to reduce your taxable income by, say, making charitable donations, another 13% — or about $120.8 million — would be due to the IRS. That would translate into $343.8 million going to federal coffers in all, leaving you with a $585.3 million.
State taxes might also be due, depending on where the ticket was purchased and where you live. While some jurisdictions have no income tax — or do not tax lottery winnings — others impose a top tax rate of more than 10%.
Meanwhile, if you were to choose the annuitized amount, it would be taxed as it’s distributed each year and would be subject to then-current tax rates.
The chance of a single ticket hitting the Powerball jackpot is about 1 in 292 million.
That’s a tad better than the 1 in 302 million chance that comes with Mega Millions, whose top prize is $154 million ($74.7 million cash) for Tuesday night’s drawing.

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One of the very first decisions a Powerball winner must make — whether to accept the jackpot as a lump sum or as an annuity — often ends up being their downfall, one expert says.
With $1.9 billion on the line this time, there are some significant advantages to spreading out the windfall.

It’s hard to imagine what it would be like to win Powerball’s $1.9 billion prize. But the reality almost always falls far short of the fantasy.
“The curse of the lottery losers is very real,” said Andrew Stoltmann, a Chicago-based lawyer who has represented several recent lottery winners.

One of the very first decisions a winner must make — whether to accept the jackpot as a lump sum or as an annuity — often ends up being their downfall, Stoltmann said.
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The jackpot for Monday night’s drawing is now the largest lottery prize ever at an estimated $1.9 billion, if you opt to take your windfall as an annuity spread over three decades. The upfront cash option — which most jackpot winners choose — for this drawing is $929.1 million.
These days, the annuity option is bigger than it previously was, relative to the cash option, thanks to higher interest rates, which make it possible for the game to fund larger annuitized prizes, according to the Multi-State Lottery Association, which runs Powerball.
Still, “over 90% of winners take the immediate lump sum,” Stoltmann said. “That’s typically a big mistake.”

Not only does an annuity offer a bigger bang for your buck but spreading out the payments also gives you a chance to build an experienced team, including an accountant, financial advisor and an attorney to protect the money and your best interests, according to Stoltmann.
“Few lottery winners have the infrastructure in place to manage a lottery windfall,” he said.
That ensures a level of financial security that the lump sum does not, even with the inevitable onslaught of solicitations, excessive purchases or bad investments.
“To make a mistake with the first year’s winnings is not catastrophic if the winner is going to receive another 29 years’ worth of payments,” Stoltmann said.

Annuity payments vs lump-sum payouts explained

Spreading out the payments is a worthwhile consideration, “especially in light of the math and psychology,” said Joe Buhrmann, a certified financial planner and senior financial planning consultant at Fidelity’s eMoney Advisor.
“Even if you spend it all, there’s another check that comes next year,” he said. “There’s a great deal of certainty in that.”
Then there are the tax consequences: Choose the cash option and a 24% federal tax withholding gets taken off the top — that’s roughly $223 million — with another hefty bill likely due at tax time. 
“The only deduction you have is the cost of your ticket,” Buhrmann said.

Of course, you’ll pay tax on the annuity checks, as well, but perhaps not as much on the investment income if the government is doing the work for you (essentially by putting the winnings in a portfolio of bonds rather than how you would have invested it).
Although you could likely make more by investing in the market over the same time horizon, there is far less risk since the annuity payments are guaranteed. Even if you die, future payments become part of your estate, just like any other asset.
“Don’t get caught up in the nickels and dimes,” said Susan Bradley, a CFP and founder of the Sudden Money Institute in Palm Beach Gardens, Florida.
Either way, “the payouts are huge and you will never be the same,” she said.

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Despite stock market losses in 2022, investors may receive year-end mutual fund distributions, which can trigger a tax bill.
Typically, mutual fund payouts happen once per year, by mid-December, after funds announce estimates in late October or early November.
However, investors may reduce capital gains through tax-loss harvesting, or using losses to offset profits.

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After a rough year for the stock market, investors may not expect to receive a surprise tax bill from year-end actively managed mutual fund payouts, experts say.
When a fund manager sells underlying assets at a profit without losses to offset it, those gains are passed along to investors. The profits are taxable to investors when received in a brokerage account.

While the S&P 500 is down more than 20% for 2022, many funds started the year with previously embedded gains, according to Morningstar. And some fund managers sold profitable underlying assets as money has continued shifting from active to passively managed funds.
As a result, some investors may see year-end mutual fund distributions, despite stock market losses in 2022, the report found.
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“It’s a double whammy,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
While you’ll owe long-term capital gains taxes of 0%, 15% or 20% for assets held for more than one year, you may also owe regular income taxes for investments owned for less than one year.

Lucas said mutual fund payouts often “slip under the radar” and need to be included as part of an investor’s year-end tax planning.

When to expect year-end mutual fund payouts

Typically, mutual fund payouts happen once per year, by mid-December, after funds announce estimates in late October or early November, explained Stephen Welch, a manager research analyst at Morningstar.
After receiving a mutual fund’s estimate, you have until the “date of record,” or the last day to be listed for a payout, to make ownership changes.
Morningstar’s report covers current distribution estimates for some of the larger funds, with more updates coming in mid-November.

Consider tax-loss harvesting to reduce capital gains

Many investors didn’t expect year-end mutual fund distributions in 2021, said Jim Guarino, a CFP, CPA and managing director at Baker Newman Noyes in Woburn, Massachusetts.
“I know that a number of my clients were just absolutely blown away,” he said.
But this year’s market decline may offer a silver lining — the opportunity to offset profits with losses, known as “tax-loss harvesting” — assuming you know your complete tax situation and take action by year-end, said Guarino.
“You’ve got to build in that variable,” he said, noting that it’s too late to reduce your capital gains taxes for 2022 once you start receiving tax forms from brokers in January or February.

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