11/20/2012 07:00 pm ET Updated Jan 20, 2013

Holiday Shopping: How to Buy Gifts Without Maxing Out Your Credit Cards

The holiday shopping season kicks into high gear Friday with traditional "Black Friday" sales. Some stores will even open their doors to shoppers on Thanksgiving. The National Retail Federation's latest report says consumers plan to shop, but will stay a little conservative with their gift giving budgets this year. Many people are still concerned about the economy and don't want to break their yearly budget or max out credit cards on holiday gifts. Here we take a look at some other payment options to keep people from having a credit card hangover in the New Year.

Using Retail Credit Cards:
There will be plenty of deals from retailers during the holiday shopping rush including luring customers to sign up for their store credit card. This can be a good payment option, but only if you don't plan to carry a balance. Most retail cards offer special discounts for signing up and other perks to help you save money. One example, Bananna Republic credit card provides its users with free shipping and free alterations on Bananna Republic purchases. The downside of these cards is that they have high interest rates, low credit limits and fewer protections than a regular credit card. So be careful when using these; the great 20-percent discount you received to open the account could easily turn into 20-percent more once you pay interest.

Putting Your Gift on Layaway:
In the last couple of years layaway has made a comeback. It allows consumers to purchase items they want right then, while paying small amounts per week over a period of 30 to 60 days until the balance is paid off. The draw to layaway plans for many is the psychological aspect of "locking in" your money. While getting an interest earning savings account might be a slightly cheaper option in the long run, some people do better when they get the money out of their control so they don't spend it on small, unbudgeted purchases. Although the idea of these programs is to stay out of debt, be careful and make sure to read the fine print. Some retailers have surcharges associated with their programs and require a down payment to get started. Also, if a payment is missed the order can be cancelled, the item restocked and in some cases you lose the money you have already paid. Remember the store holds your item until you pay the bill off, so plan ahead and get started early.

In-Store Financing:
If you'll be making a big purchase this year, you might consider a store's financing plan. During the holidays there are lots of advertisements from retailers offering no payments and zero percent interest for a certain time period sometimes up to 18 months. Although this may be tempting, only do this if you have the means to easily pay it off before the grace period is over or before. Many consumers don't realize these plans are different than zero percent introductory rate credit cards. If you don't pay them off in the allotted time the interest is retroactively applied to the entire original balance not just the balance you still owe. Additionally your credit score could suffer because the added debt and credit inquiry.

Bottom Line:
If you are still concerned about having enough money to complete your shopping list this year consider trimming back on your list or spending less on each person. Another option: look into making gifts or offering to do something for someone instead.

Ken is the founder and CEO of, a free credit management website that helps more than 9 million people access their credit score for free.