What’s the best way to pay for the holidays?

From Halloween through New Year’s is the time of year when consumers spend the most money, according to the Bureau of Economic Analysis. Costumes, food and drink for Thanksgiving, holiday gifts, maybe a new outfit for a special party are all expenses that pop up as the year comes to a close.

Unless you’ve put money aside on a monthly basis for the year-end splurge, you’ll need a way to pay for everything. Using debit or credit cards or taking out a loan have both upsides and drawbacks to think about.

Charging the cheer

Pulling out plastic at the checkout counter is a habit now. The Federal Reserve’s 2013 Payment Study found that 59% of noncash payments were made with debit and credit cards in 2012, the most recent year surveyed.

If you’re using a debit card, you’ll need to have enough money in your checking account so you don’t overdraw your account. With a credit card, you won’t actually be spending your money until you pay the bill at the end of your billing cycle. But remember that you’re paying for that delay: The interest rates on credit cards are higher than any other type of loan, with the average rate around 15%.

If you’re a smart consumer and pay your credit card balance in full every month, the interest rate probably doesn’t matter to you. And if you use a rewards credit card, you may be accruing points or cash back that can make paying with plastic attractive.

Borrow for the holidays

An alternative to using credit cards for holiday spending is getting a loan from your bank or credit union. A home equity loan or line of credit has a lower interest rate, but there are closing costs and you’d be adding to your home debt. The upside is that the interest on this type of home loan may be tax deductible.

A personal loan, on the other hand, does not require collateral and you can choose the loan term, usually from 12 to 60 months. You may have to pay an origination fee of between 1% and 5% of the loan amount (depending on your credit score), and there may be a prepayment penalty if you pay off the loan before the end of the term. The interest you pay on a personal loan is not tax deductible.

Some credit unions, such as Hanscom Federal Credit Union, offer holiday loans, created to help you over the holiday hump. These loans have a set amount you can borrow and a low fixed rate of interest.

Another benefit of a loan can be the impact on your credit score. If you have credit cards and also take out a personal loan, it will also contribute to your credit mix, which accounts for 10% of your credit score.

So before you start your holiday shopping, plan how you’re going to pay for those seasonal expenses.