Stay “in the black”: Make a financial plan and a list before you start holiday shopping
You may have started a list of stores you plan to stop by on Thanksgiving or Black Friday based on the shopping hours roundup that I listed today in The Monroe Evening News and similar lists that other news outlets have been posting for their areas.
You might even be making a list of stores or retailers to check for additional deals on Small Business Saturday, CyberMonday or Free Shipping Day.
But you are not ready to take on the holiday shopping season until, like Santa, you have made a list of people you are shopping for and the likely price ranges involved, and are ready to fight the temptation to spend beyond your financial resources.
Those are among the key points that Rod Griffin, director of public education for Experian and one of the writers for the Ask Experian blog, made when I spoke with him for a phone interview Monday.
The National Retail Federation is estimating that this year’s holiday shopper will spend an average of $749.51 on expenses such as gifts, décor and greeting cards. That might not go very far, depending on how many people are on your shopping list or what you plan to buy. Some of this year’s popular tech gadgets, for example, cost more than $300.
Rod lives in the Dallas area, and said that he’s already heard of people lining up at stores in Texas in hopes of getting one of the Black Friday doorbuster deals. While Black Friday can be “a great day to shop,” he said it’s also rife with temptations to spend more money as people notice promotions on either additional gifts or things they might like for themselves.
“Our hope is that people have done their pre-shopping planning,” Rod said. “You really should take the Santa Claus approach. Make a list and check it twice. Don’t get distracted.”
After all, it’s not the spending that’s planned for that gets people into financial trouble after the holiday season; its the spending they didn’t expect. Impulse buys, whether they are $30 or $3,000, become budget-busters. “That’s happened to people,” he said.
One of the consumer tips Rod brought up involved the promotional tactic used by some retailers of signing customers up for a credit card in exchange for a discount or deal. This could make sense, he explained, if there is a big ticket purchase you planned on and you are able to pay it off in full or fairly quickly. The problem with making several installment payments over time is that the interest paid might wipe out the discount that was “earned.”
In addition the erosion of money saved, there also could be erosion of one’s credit score. Rod explained why:
Each application for a new credit card or line of credit shows up on a credit report such as those tracked by Experian and the other major credit bureaus. He explained that new lines of credit can be an indicator of credit risk, therefore the formulas that are used to calculate a score usually result in a small decrease of a credit score for a couple of months after a new credit source is opened.
“Think about that,” he said, if you expect to apply for a car loan or mortgage soon.
Rod also reminded shoppers not to use up credit lines they already have access to during the holiday season. Yes, the statistics that the company tracks typically see consumer credit balances and debts increase during that time. The problem is that while credit scores depend in part on paying the minimum due by the due date, another piece of the puzzle is in how much of the available balance as actually been used.
“That’s also a sign of risk. Have a plan to pay those balances off as soon as possible after the holidays,” he said.
That means knowing out what expenses will be cut back, or what income sources, will be used to pay down the holiday shopping expenses, and by which date those bills will be settled.
If you are wondering if your credit information is correct and current, Experian participates in the free credit report program that is available to consumers at AnnualCreditReport.com. The company encourages consumers to check that at least once a year for the free review.
Other products and services that can be purchased based on consumer needs and interest includes Credit Educator, a $29.95 package that includes a one-on-one telephone conversation as an Experian credit educator consultant explains what the credit report means and provides suggestions. This is a new service, and one that Rod said has been getting good response from its customers.