It's that time of year: pull out the gloves and winter coat, plan your holiday get-togethers with family and friends, and heed the warnings about running up too much credit card debt. I'll focus on that last one.
No matter how much money you have to spend on gifts, we all love those big signs advertising 30 percent off, 50 percent off or even more. But if it takes you many months to pay off the credit card bill, you might as well be shopping at the "I'll pay an extra 20 percent" rack.
"The goal should be to pay off the your credit card balances, if not immediately after the holidays, then within a few months," according to Linda Sherry, a spokeswoman for the advocacy group Consumer Action. "Gauge what your payments would be with the goal of paying it off by March, if you can't do it all in one fell swoop." If you pay off a substantial portion of the total bill, Sherry says your interest payments will be relatively small. But if you carry that debt for many months, the interest will continue to mount and negate a lot of the bargain price you worked so hard to find.
What Do Those Gifts Really Cost?
Let's say you splurge on a high-def TV and a trendy designer pocketbook, running up a credit card bill of $4,000. If you pay it off when the bill comes in, there's no interest. If you pay it off in three equal monthly payments at 12 percent, it will cost an additional $81 in interest; and if you pay $500 per month, it will take you nine months with total interest payments of $190 (assuming that you don't run up any additional credit card debt along the way). Play around with the numbers on free credit card calculators before making a big purchase to see how much it will cost you in interest under different payment scenarios.
If you miss a payment or fail to pay the monthly minimum, you'll be hit with a late fee of $25 to $35. And if you miss two months in a row, you basically go to credit card jail. You are then subject to a penalty interest rate that could top 30 percent. A Creditcards.com survey of leading credit card issuers found the average penalty interest rate is 28.45 percent. If you fall into that trap, the $4,000 of feel-good purchases would cost an extra $665 in interest over the course of a year.
If you know that you won't be able to pay off your bill in full, "it can be a good idea to take advantage of the auto-pay feature offered by your bank," said Matt Schulz, senior industry analyst at CreditCards.com. "If you set aside $50 or $100 every month and have the bank pay that automatically, it can help you avoid falling into the penalty trap." He says the penalty applies to both new and old purchases. "When you're hit with a penalty rate," says Schulz, "things can get out of control in a hurry." He says that once you fall into the penalty category, it will take you six months of making on time payments to be "cured" and escape the extremely high penalty rates.
Paying the Penalty
Fortunately, the number of people who fall into the penalty box has declined as the economy recovers and the unemployment rate falls. In addition, Schulz says the number of issuers who impose this penalty has declined since the Credit Card Accountability and Disclosure Act was passed in 2009. CreditCard.com says 60 percent of card issues impose penalty rates now, down from 91 percent in 2010. However, business credit cards are exempt from the CARD Act and are often subject to the harshest penalties.
So before you hit the mall or start buying online, Sherry suggests that you look over your bank account for the past six months to get a good idea of how much money was left over for discretionary spending -- and keep an eye on your current credit card balance. "Be frank with yourself about why you're using credit. Can you afford the purchase? Keep track of what you're putting on the card. It can get out of hand pretty quickly."
13 Ways Black Friday 2014 Will Be Different
'Tis The Season for Credit Card Warnings
Last year, to build anticipation, a handful of retailers offered sneak peeks of their Black Friday ads several weeks before the official, complete debut. The strategy was successful at generating buzz, so expect to see far more retailers doing the same this year. A few stores to watch out for include MacMall, JCPenney (JCP) and Macy's (M), which leaked its sales via its Pinterest page.
Doorbuster deals are super-cheap, small-volume deals designed to get shoppers inside stores on Black Friday (although they frequently appear online as well). But because doorbusters are so limited in quantity, they tend to run out before most people set foot inside a store -- prompting many shoppers to just stay home. But, retailers want you in-store, in the hopes that you'll make some impulse purchases. Thus, we expect more retailers to offer a handful of "guaranteed" doorbuster deals this year, meaning eligible shoppers will receive wristbands or vouchers that guarantee that item, even if supplies run out (but you might have to wait a few weeks to receive it). Walmart (WMT) and Toys "R" Us did this to great success last year, and we expect to see more stores join in this year.
Despite petitions and protests from employees, retailers are looking to stock up on cashiers this Black Friday. While that means more people will have to work extra hours this Thanksgiving, it also means shoppers should experience shorter lines and wait times in-store.
It was around Black Friday last year that Target (TGT) experienced the first of these massive security hacks, but it wasn't the last; then came Neiman Marcus, eBay (EBAY), Home Depot (HD) and more. There's no denying 2014 has been the year of the hack. As a result, both retailers and consumers will be extra cautious this year, guarding their credit card info from would-be thieves. We recommend brushing up on a few crime prevention basics and limiting the amount of times you use your debit card in public.
Despite those financial security concerns, tap-to-pay services are at the forefront this year now that Apple (AAPL) has joined Google (GOOG) Wallet in the mobile payment industry. This may spur competing platforms and retailers to offer promotions or loyalty rewards when consumers pay via their smartphone. So, be on the lookout for promotions tied to mobile wallet purchases this year.
Good news for online shoppers: The United States Postal Service has slashed shipping costs for select businesses by up to 58 percent, which may inspire more shipping discounts from retailers. But before you celebrate, the new lower prices may backfire and cause the USPS to be overwhelmed this holiday season, especially as UPS (UPS) and FedEx (FDX) prepare to raise their rates. Your best bet -- shop early and keep an eye on those tracking numbers.
Previous-generation streaming devices tend to see the best deals on Black Friday, but this year the market is busier than ever, meaning we could see significant deals on current-generation set-top boxes. Among the newer models to look out for are Amazon's Fire TV and Sony's (SNE) PlayStation TV, both of which debuted at $99 and cater to gamers.
This year we expect to see no-frills 4K TVs hit well below the $999 mark. Leading the charge will be budget TV manufacturer Seiki, which broke all deal records this summer with its $280 39-inch and $429 50-inch 4K TVs. These and other Seiki screens will hit similar price-lows this Black Friday, bringing 4K technology to the masses.
Bargain bin laptops have hit rock bottom. These simple, low-powered machines can't get any cheaper than prices we've seen in years past, which range from $178 to $200. As a result, this Black Friday you're going to see better discounts on mainstream machines, i.e. laptops with Intel's (INTC) current-generation Core processors and a respectable spec sheet. Deal prices on mainstream machines have been steadily dropping since April, with deals already flirting with the $350 range at the start of the fall season.
There was a time when brick-and-mortar stores refused to price match their online competitors, but as more consumers turned to e-commerce, big-name chains like Walmart and Best Buy changed their policies. This year, Toys R Us, Walmart, Best Buy and Target will be just a few big name stores that will take on Amazon. Expect to see many more price match announcements as Black Friday approaches. And as always, make sure to read the store guidelines as not everyone will offer no-questions-asked price matching.
Despite a crash in sales, tablets are still a hot commodity and expected to sit atop everyone's shopping list this November. With growing competition from Apple, Google and Microsoft (MSFT), it's a buyer's market, which means you can expect more tablet sales this year than there were in 2013. If you're strapped for cash, Windows tablets could offer the most savings since 50 percent of Windows tablet sales this year have been Editors' Choice deals.
Traditionally, the best toy deals appear in mid December, just before Santa's big debut. However, last Black Friday week saw more toy deals than ever before, beating out every week in December in terms of Editors' Choice deals. While it's hard to predict what might happen this year, one thing is certain: If you have toys on your shopping list, you won't want to sit out this Black Friday.