All of my holiday posts have basically been the same thing…
- Santa Claus Is Coming to Town
- Holiday Lay-Away
- Money Smart Holidays
- Three Tips for Holiday Spending
- Holiday Savings: How to Handle the Holidays Without Going Into Debt
The message that I have been sending is pretty simple:
‘Let’s save up money ahead of time to cover holiday spending! Let’s cut our dependency on credit during the holidays!’
In this post, I am going to go in a slightly different direction. Instead of talking about saving up, I am going to talk about some things that you should avoid as you navigate the financial world during the holiday season. These are fairly common ways that people cover holiday costs, however they should be avoided. Not only will I mention these items, but I will also say why they are bad ideas. As you can imagine, these mainly have to do with debt.
Let’s start with an obvious one…
Did you know that there are people who are still paying off last year’s holiday expenses? Do not be one of them! That just is not the way to live.
Credit cards may be fine for some people, but they are terrible for others. If you are one of those people who can use the credit card to facilitate transactions, pay off the balance each month, and never pay interest – more power to you! However, not everybody can do this, and a big part of financial wellness is understanding your limitations.
Rule number 1: Do not use the credit card during the holidays!
Rule number 2: If I cannot convince you otherwise, then make sure you can pay off the balance right away.
And do not get me started on retail credit cards… Retail stores will be offering their plastic like crazy, but the point-of-purchase where you are rushed and there is someone behind you is not the time or place to be signing a financial contract!
90 Days Same As Cash
This is an arrangement that is popular with furniture and electronics. Basically, the deal is that you make your purchase right away but do not need to make any payments up-front. As long as you pay the balance within 90 days (about 3 months), you will not a cent in interest. This is why it is called “same as cash” – it is as if you paid cash and no interest.
The problem is that you most likely will not pay the entire balance off in 90 days. Even if you are 1 day late, then you will owe interest. And guess what? You will be back-charged to the date of purchase, and all of the interest that would have otherwise accrued will be added to your balance! This is referred to as a deferred interest financing arrangement and is terribly misleading.
The marketing makes you believe it is one thing, but if you read the fine print… well, you will find the devil in the details.
This is another deferred interest financing arrangement and is related to 90 days same as cash. The difference? This is typically found in some larger furniture stores and appliance stores. Also, 0% financing typically lasts for a longer period of time (between 6 months or longer).
Usually, this is advertised as “make no payments until 2018!”
Home-Equity Credit Products
Using a home-equity credit product is something that I frown upon in general. Personally, I believe home-equity credit products are some of the most dangerous financial products ever created. So naturally, I am going to recommend avoiding them.
The problem with home-equity products is not only do you go into debt for a consumer purchase, but you also put your home at risk. You know that Tickle-Me-Elmo that you bought using your home-equity line of credit? It could cost you your house if you do not make the payments on time!
And do not tell me that you will pay it off on time. Those are the famous last words of a sucker.
Lay-Away at a Premium
Lay-away services are not necessarily a bad idea. Some people like using them not for purposes of buying on installments, but for purposes of hiding the purchase from the “giftee.”
Just do not pay an extra fee for lay-away. If a store is going to charge you for lay-away, then just say “no.” There is no reason to use lay-away if it costs extra.