Ways to Pay Less Over the Holidays

By Kelli B. Grant,
Senior Consumer Reporter, SmartMoney.com

It may be the season of giving, but shoppers are watching every penny.

This holiday season, consumers will spend an average $683 -- 3.2% less than last year -- on gifts, decorations, parties, greeting cards and other expenses, according to the National Retail Federation. "No one can afford to be frivolous this season," says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.

But there's no need to put the "Bah, humbug!" on celebrations, either. This year, trim your tab using these five strategies:

1. Set a Budget

In a perfect world, you've been saving for this holiday season's expenses since... well, the end of last holiday season. Whether you have or not, setting a budget that reflects what you can afford to spend is a must to keep costs in check, says Cunningham. "We see people putting 2009 holiday spending on top of 2008 holiday debt they have yet to pay off," she says.

Make a list of anticipated expenses such as travel, postage, decorations and holiday tips. For gifts, detail who you're buying for and a budget for each. Also factor in extra holiday-related costs on regular bills, like tree lights' impact on the electric bill and that of well-wishing on your cellphone plan. It all adds up faster than you think, so be prepared to scale back or even eliminate individual budgets to match your priorities and spending limitations, Cunningham says.

2. Compare Prices

Making sure you're getting the best price for gifts on your list can help maximize a small budget, as well as shave money off individual expenses, says Jeannette Pavini, a household savings expert for Coupons.com. Comparison shopping takes just minutes and, with so many sales in play, can lead to substantial savings. For example, hot holiday toy Elmo's Tickle Hands ranges from $24 to $30 online. You could save up to 20%. "Have the mindset of, this is free money," says Pavini.

SmartMoney put several price comparison search engines to the test. Our favorite: PriceGrabber.com.

3. Consider Layaway

Store layaway programs allow consumers to put items like jewelry and videogame consoles on hold, with a deposit and promise of regular payments – without any interest charges. Items can be taken home once you've paid for them in full. Typically, layaway programs require an initial payment of at least 10%, as well as a small processing fee of $5 or $10 per order. (So if you are purchasing multiple gifts, you'll only be charged one processing fee.)

Think of layaway as a forced budgeting system, says Mackey McNeill, a certified public accountant and member of the National CPA Financial Literacy Commission. "You're paying for the item before you pick it up," McNeill says. That eliminates the interest charges you may incur if you use a credit card. Sears and Kmart kicked off the layaway craze last year, and this year, Toys R Us and Babies R Us have joined the fray. Online, elayaway.com offers layaway on select items from Best Buy, Apple and other retailers.

4. Scout Sales

More than half of holiday shoppers say price -- whether regular or sale -- will be the most important factor when deciding where to shop, reports the National Retail Federation. Limit your shopping before Black Friday, when retailers are expected to roll out their most spectacular deals. Hang onto your receipts, too, to take advantage of price-matching policies should the item's price drop or you see it cheaper somewhere else. "Just bring in the ad and nine times out of 10, they will honor that [price]," says Coupons.com's Pavini.

For more tips to play the sales, click here.

5. Prepare Your Plastic

If you can pay off your purchases in full each month, using a credit card for holiday purchases has its perks, says Curtis Arnold, the founder of card comparison site CardRatings.com. Many higher-level cards (platinum, World MasterCard, etc.) offer benefits such as return guarantees, taking back most returns that the retailer won't accept within 90 days of the original purchase. (You typically have to fill out paperwork online for the issuer's approval, and then mail the item to the credit card company.) A few, like the Citi Premier Pass Elite, offer a one-time price adjustment if you find a better deal on an item within 60 days of purchase. "That's a pretty slick benefit," says Arnold. Such benefits don't always make it into the card literature, so call your issuer to see if you're covered.

You can also find outright savings with discounts. Credit card brands and issuers often forge relationships with retailers to provide exclusive online and print-out coupons when you pay with a particular card. Before you shop, check out seasonal offers at American Express, MasterCard and Visa.