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Step 1
First of all, discard the notion that you can simply not reply and not show. If you were extended the courtesy of an invitation I think it is important to at least offer the same respect in return and reply to the invitation.
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Step 2
Respond promptly. There is nothing more annoying than trying to plan a party and not knowing how many people are going to show up. Don't put it off because you will forget.
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Step 3
Whether over the phone or in writing, sincerely express your appreciation for the invitation when you decline. They thought highly enough of you to invite you, so feel good about that and share your feelings.
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Step 4
Do not make up an excuse. If you have a valid excuse feel free to use it, otherwise just use generalities like "I have been very busy with the kids/work/church/whatever". It makes no sense to complicate your life by trying to keep track of all the white lies you tell.
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Step 5
The next time you see or talk to the person, apologize for not being able to attend and ask how it went. This will end your commitment.
