6 credit mistakes that can ruin your holidays
A recent 2012 study by USAA of consumers' shopping expectations revealed that there will be less budgeting and more spending this holiday season. "In addition to the decrease in the number of shoppers cutting spending and budgeting, nearly half plan to use their credit cards to make holiday purchases," says J.J. Montanaro, a certified financial planner with USAA. And only a third of shoppers plan on paying off their card balances in full right away, he says.
With credit card purchases headed to rise into the holidays, here are six credit slip-ups to avoid this season, along with patch-up advice for the sadder and wiser shoppers among us.
Mistake No. 1: You now own a half-dozen retail credit cards.
Signing up for an in-store credit card to save 20 percent or even 30 percent on purchases that day is tempting. It's also trouble, says David C. Jones, president of the Association of Independent Consumer Counseling Agencies, a nonprofit trade group based in Fairfax, Va. Sign up for a new card too many times in too short a period, and it can hurt your credit. "And in a lot of cases the interest rates are ridiculous," Jones says. (A 2010 CreditCards.com survey said that nearly two-thirds of retail cards feature an APR of 23 percent or higher. Meanwhile, the annual interest rate on a new bank credit card is roughly 15 percent.)
Holiday help: Take a pass and make do with the credit you already have. Or if you absolutely must get a new retail card, get just one -- instead of signing up for one in every store you visit.
Mistake No. 2: You're tempted by delayed-interest offers.
A popular offer this time of year is "no interest until 2014," especially on big-ticket items such as appliances and furniture. So even if you don't need a new California king mattress and storage headboard to go with it, you buy.
Holiday help: Read the fine print before you sign. Retailers "aren't in business to lose money," Jones points out. "The truth of the matter is these offers are very carefully calculated." Either the interest rate is built into the cost of the item, or interest accrues during the "free" period, and you pay it at the end of the free period. "It's wonderful to use credit to get things you need right away," Jones notes, "but it's much better if you pay cash."
Mistake No. 3: You're spending more than you planned to.
So you walked out of the mall with twice as much stuff as you wanted or needed? No wonder: Retailers are geniuses at getting consumers to spend money. "Marketers know all about the psychology of spending," says Cicily Maton, founder of and financial planner at Aequus Wealth Management in Chicago. Everything from artful displays to that pile of fetchingly priced stuff at the cash wrap "is geared toward making us spend more money," she says. Her favorite crafty ploy: Buy-one-get-second-for-(however much)-off, which sends most consumers searching for a sweater or pair of socks they don't need, just for the discount. "And you're still spending half as much as you would anyway," Maton points out.
Holiday help: Make a list for every single store you plan to visit, and stick to it, Maton advises. Stay out of stores you don't need to shop at, she adds. Taking cash, not credit cards, also helps resist temptation, as does a snack before a shopping trip. "If you shop when you're low on blood sugar, your judgment is impaired," she says.
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Mistake No. 4: You're a big bargain shopper.
Newspaper ads and in-store signs tout half off -- even 75 percent off -- tempting gifts and goodies, and urge consumers to "buy now, while supplies last." They're bargains, right? And as a good shopper, how can you resist?
Holiday help: Unless the item is on your list, resist the urge to rush out and buy. "It's not on sale," points out Ed Landis, president of Landis Financial Services in Annapolis, Md. "Two weeks later, they'll have another sale." Landis also points out that a bit of Internet research often can reveal similar bargains (though be aware of shipping and handling costs).
Mistake No. 5: The bad guys got your credit card number.
The keep-it-close protectiveness you feel about your wallet or handbag can fade while shopping online. Yes, you're safe at home, but talented hackers can breach even secure sites. Less-than-trustworthy e-retailers can neglect to fully secure their websites. Scam artists double down on spear fishing -- sending innocent-looking links that, when clicked, download malware onto desktops. That malware records keystrokes and enables thieves to steal any and all data entered into that computer.
Holiday help: Make sure e-commerce sites are secure. Look for a small icon of a lock in a lower corner of the screen. The Web address prefix "https" denotes a secure site; the "s" stands for secure, explains Stan Stahl, president of Citadel Information Group, a Los Angeles-based cybersecurity firm. To protect your home computer, download software updates regularly. To avoid malware downloads, don't click on links in e-mail advertisements; cut and paste them into your browser, Stahl advises. Finally, buy only from e-retailers you recognize; thieves set up pop-up Internet shops this time of year and use savvy search-engine optimization tools and ridiculously low offers ($10 for an iPad, anyone?) as come-ons. Finally, review your credit card statements each month to make sure you, and not a thief, are responsible for the charges.
Mistake No. 6: You're spending money you don't have.
With mortgage and auto loan rates at record lows, credit card debt falling (it's dropped by about $171 billion since August 2008) and a slight rebound in the job market, it may be tempting to feel flush and spend accordingly. That might include tapping into the holiday bonus that might be coming this month or signing up for an extra credit card or two.
Holiday help: Don't do either, advises Chris Karam, chief investment officer at Sheridan Road Financial, a financial-planning firm in Northbrook, Ill. "These are murky economic times," Karam says. "Liquidity has returned, but the ability to spend has not necessarily improved." Both banks and consumers have suffered much in the past four years, and few can afford to lend and spend recklessly with having sufficient reserves built up.
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