Beating Broke

Personal Finance from the Broke Perspective

Are Good Deals Putting You in Debt?

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We all love a good deal, right?  There’s nothing better than paying $2.40 for a pair of kids’ shorts that retail for $16 or paying $0.25 for Christmas wrapping paper at an after Christmas sale when it would cost you $2 or more to buy it new.

After all, buying things on clearance is what savvy shoppers do, right?  This is an excellent strategy for being frugal with your money, right?

Well, yes. . .and no. Are those good deals putting you in debt? Ask yourself these questions and decide if you really need that good deal.

Do You Buy More Than You Need?

Good Deals DebtWhen something is on clearance 80% off, it’s tempting to buy alot. . .more than you need.  After all, why buy one sweater at $5.00 on clearance when you could buy 8 for the cost of what just one would cost retail?  Besides, you’re not paying any more than it would cost to buy a $40 sweater brand new, and you’re getting 8.  What a deal!

But do you NEED 8 sweaters?  Will some of them languish in the back of your closet, with the tags still on, until you decide to purge your closet and give them away or try to sell them at a garage sale?

Can You Afford It?

Sometimes, you need to pass up good deals.  If you can’t afford the deal and put it on credit card, are you really saving money?  By the time you figure in the interest you’ll pay, that clearance sweater may end up costing you nearly as much as it would cost retail, or, if you pay only the minimum payment on your cards, even more!

Some people have gone in debt in pursuit of good deals.  Kristine Rogers, who was featured in Money magazine, explains that she went in debt buying children’s clothes on clearance: “Gymboree held a clearance sale in which every item was priced at $7.99. ‘I grabbed clothes my daughter didn’t need.  I bought four of the same coat in different colors.’  By the end of the day, Rogers’ compulsion had cost her $800.”  Rogers developed a full blown shopping addiction in the pursuit of sales and ended up with $50,000 in credit card debt!  Sure, she got good deals, but in the end, after interest, she likely paid much more than she would have if she’d bought the items at retail.

Are You Tying Up Current Cash Flow?

Assuming you don’t go into debt to buy good deals, you may still be tying up your cash flow.  If you spend $40 on 8 sweaters that you buy in May but won’t wear until November, you’re tying up cash flow.  If you don’t wear some of those sweaters at all, you’ve wasted money despite the good deal.

Be More with Less explains, “If you buy wrapping paper on December 26th and stock up on sale items year round, you are spending more than you would if you just bought what you needed.  Don’t be fooled by the cashier that tells you, ‘you just saved $22.00’ when you just spent $300.”

What do you think?  Is it worthwhile to pursue good deals, or can it be a slippery slope to overspending and debt?

Do you buy items on clearance?  Do you always use all of the items, or do you accidentally buy too much?

Is It Worthwhile To Still Use Credit Cards with So Many Data Breaches?

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Just recently, PF Chang’s acknowledged that 33 of their restaurants had suffered a security breach over the last 8 months and that the credit card numbers as well as possibly the customers’ names and the expiration dates of the cards were compromised.  This news should be shocking or surprising.  Unfortunately, data breaches have become common place.  Just consider the recent security breaches at Target, Michael’s, and Neiman Marcus, to name a few.

If you’re diligent about shredding your personal information so that it can’t get into the wrong hands, you’re still not safe.  Consider all the recent security breaches.  It’s enough to make people start to think about not using credit cards just  to avoid this problem. Until they remember all the cash back they’re earning!

But even that is not a complete solution.  Yahoo! Finance just announced that a Russian gang has stolen billions of Internet passwords and millions of e-mail addresses.  “The records include confidential material gathered from 420,000 websites, ranging from household names to small Internet sites” (Yahoo! Finance).

The problem is so widespread.  If you want to live in the modern world, going without the Internet and credit cards to preserve your identity is very difficult.  Instead, consumers need to become even more diligent in their efforts to protect themselves and their identities.

Data Breaches Consider taking these steps:

1.  Change passwords frequently and make them difficult.

If you’re using “Sunshine” or “password123” as your password, it’s time to step things up.  Choose passwords that have capital and lower case letters as well as symbols and numbers.  A password like “S&36ptrM$9” will be much more difficult to crack than the passwords most people use.

Remember to also change your passwords frequently and avoid using the same password for all of your accounts.

2.  Protect your data.

When you shop online, you have the option to have the company save your credit information.  Do not opt to do this to protect yourself and your financial information.  Yes, entering your credit information every time you place an order online is a pain, but it’s much easier than trying to resolve identity theft.

3.  Order your credit report 3x year for free.

Each of us is entitled to one free credit report per year from each of the credit bureaus.  Make sure to order yours, but rather than ordering all three at once, stagger them.  Order one from Experian in January, one from Equifax in May, and one from TransUnion in September.  By staggering them, you can keep a close eye on your credit and notice fairly early if there is any unusual activity.

4.  Check your accounts regularly.

Especially if you have automatic payments set up, make sure to still take the time to look at your account to make sure there is no suspicious activity.

5.  Consider freezing your credit.

This is a radical step, but freezing your credit is the best way to protect your identity.  If your credit is frozen, no one can open a new account (including you) unless the credit is thawed using a special code you’re given when you freeze your credit.

Identity theft is an unfortunate consequence of our modern world.  You can’t avoid all technology to protect your financial information.  These strategies will help protect you while letting you use and enjoy modern financial conveniences like credit cards and ordering online.

Compare Those Credit Card Offers

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Like many mailboxes around the country, mine seems to overflow on occasion with credit card offers.  I’m not sure what it is, if their marketing departments all work on the same cyclical calendar, or if there are certain market indicators that trigger a flood of offers, but whatever it is, they all seem to come all at once.  Normally, they all find their way to the shredder, to then find their way to the trash can.

One of the things that we still do, because we haven’t paid off all of our credit card debt, is to occasionally transfer the balances to take advantage of those same credit card offers.  One of those offers recently expired, and so I had been keeping my eye out for a new offer to make the move.  That offer came in the form of those little convenience checks that the credit card companies are so fond of sharing.  In this particular case, from a card that we’d already paid off, but had left open.  It had two checks in it.  One that offered 0% interest for about 13 months, and the other that offered 1.99% for about 18 months.

Which Credit Card Offer Will Reign Supreme?

Credit Card Offers

There was plenty of balance on the paid off card to take care of the entire balance of the other card.  It was just a matter of writing the check to transfer the balance, and mail it.  But, which one?  Most people, including myself, if making the decision in a quick manner would likely choose the 0% offer and mail it off.  However, it bears a little more analysis than that.  Especially if, like in our case, you don’t think you’ll have the balance paid off at the end of the 13 months.  When the transfer special expires, the rate bumps back up to the normal 12.24%.

I put a little thought into it, and thought that there might be some advantage to using the 1.99% rate with the longer term.  But, I had to be sure.  I’m no math wiz, especially when it comes to interest rates, so I went looking for a calculator that might help me figure out for sure if there was an advantage to one rate or the other.  I found two that gave me the numbers I was looking for.

Credit Card Offer Calculators

The first was a calculator from my friend Todd Tresidder over at FinancialMentor.  It’s a simple Credit Card Comparison calculator.  I think it’s meant to compare different credit cards, but I just punched in the numbers for the different offers on the same card and hit the button.  What did it tell me?

In both this calculation, and the second one, I used a few assumptions.  These aren’t really true assumptions, but I had to use some baseline to determine the difference.  I assumed that it would take us longer than 18 months to pay off the entire balance.  I used an approximate payment.  I also assumed (since the calculators didn’t allow for different payments) that we’d pay the same payment for the entire life of the credit card.  Here’s what I found.

In Todd’s calculator, the difference between the two offers was about 5 payments to payoff, and about $300 in savings.  Which one won?  The 1.99% offer. My initial thoughts were confirmed.  An interesting note; I played with the payment amount, and the more we pay as a payment, the less difference there is.  In fact, there’s a tipping point, where the 0% offer is better.  As I suspected, the more you pay, the sooner you’ll pay off the balance, and the more advantage you get from using the 0% rate.  But, remember that I made the assumption that we wouldn’t be paying it off in less than 18 months, so that isn’t an issue in our case.

The second calculator that I used is this credit card balance transfer calculator.  This calculator seemed to be set up a little more for this specific calculation.  It adds in calculations for the balance transfer fee which is something that you certainly need to take into account if you are thinking of transferring a balance.  With all the numbers punched in, and the calculator spinning up, my initial thought was once again confirmed.  In fact, this calculator seemed to show even more advantage to going with the 1.99% rate.  Here, I got an answer of about $405 in costs.  Again, massaging the payment gave the same results in that the more you pay, the more advantage there might be in taking the 0% rate.

We Have A Credit Card Offer Winner!

So, all that calculated, we filled out the check for the 1.99% transfer and sent it off.  But, it brought an interesting revelation to me.  You’ve got to compare the offers.  A difference of a few months, or a few interest rate points can make a much larger difference than you think.  Compare them thoroughly, and try and make accurate assumptions about your payoff behavior so that calculators like the ones I used can give you accurate information.

Have you ever found that an offer that, at first glance didn’t seem the best, really was?