If you have kids in school—K through 12 or college—you don't need anyone to remind you that back-to-school season has arrived. Between those early-season sales and last-minute shopping, there's plenty of potential for trouble in the realm of personal finance—all the more so if you're buying school supplies or clothes on a tight or non-existent budget. After you survive this ritual, there is a veritable conga line of holidays—Halloween, Thanksgiving, Christmas, Hanukkah, Kwanzaa, New Year's, etc.—each jumping up and down, screaming "What about me?!" and presenting financial challenges if you're not exactly flush. A little planning now could make a big difference in what you can spend as 2014 draws nearer. With that in mind, here are seven mistakes you should avoid when doing your back-to-school shopping.
|Failing to Establish a Budget Before You Start|
If cash flow is an issue, it's a huge mistake to wade into the back-to-school shark tank if you haven't set a budget. Stream of consciousness shopping can only get you into trouble. Figure out what you can afford to spend, make a comprehensive list, even consult with your children to make sure you are getting what they want (especially if the choice is between Man of Steel, Iron Man, Spiderman, Dora or Barbie backpacks and notebooks) in the context of what they need. Unless it is absolutely necessary (or a family bonding exercise) to have them with you, it's best to leave the munchkins at home. If you want to know their preferences, browse with them online before hitting the stores. The last thing you need is to be weaving through crowds at Staples, Kmart or Target, or navigating several online retailers, while fending off cries of, "Mommy, I really NEED to have this" and falling into the trap of running a "dollars for peace" program. Democracy is a wonderful thing, except when it involves back-to-school shopping.
|Using the Wrong Credit Card|
The average American borrower owes $4,878 among 3.5 different credit cards. If you're one of the millions of Americans who runs a balance on your cards and can't pay it off at the end of each month, choosing the right card is essential. If your goal is to preserve your cash flow, concentrate on reducing debt on credit cards with the highest rates first. Of course, you may have to weigh this concern against using a lower-interest card that is nearing its credit limit. If you have a choice, it's always best to use the card with the lowest rate when you know you're going to have to carry a balance. If you forget the exact terms of each of your cards, check the fine print before leaving home.
|Using Credit When You Should Pay Cash|
If you find yourself checking rates and choosing between different cards to avoid bumping up against your credit limit, ask yourself this: "Can I pay with cash?" Even if you can't afford to use cash, want to preserve it or want the vig of rewards points, you should act as though you can. Shop wisely. Spend as little as possible, and remember: if you're running low on affordable credit, the last thing you should do is rack up more debt. If you use a debit card, decide how much you can spend before you leave home. Sometimes, in order to exercise the most self-discipline (and avoid acquisition ecstasy), go the cash route. Withdraw the exact amount you have budgeted and when you're out of cash, you're done shopping.
|Picking the Wrong Rewards Deal|
Even if you have plenty of available credit, it's still possible to make credit card mistakes while doing your back-to-school shopping. If you fail to take advantage of the best rewards deal, you're not taking full advantage of your credit portfolio. And why shouldn't you? Many credit cards offer quarterly rewards deals for specific types of purchases. However, those deals don't just magically appear. "You have to pay attention and sign up beforehand, at the beginning of the quarter," says Gerri Detweiler, Credit.com's personal finance expert. "It's a good deal, though, because you often can save about 10% on your purchases. A typical back-to-school rewards program will focus savings on office supplies or kids' clothing. Many of the best deals are available online, at a "rewards mall" website offered by your credit card issuer. You should shop around beforehand, especially if you have more than one card, to find the best deals on the things your child actually needs.
|Jumping at Store Credit Cards|
When you're standing at the cash register and the cashier offers 5 or 10 percent off a big purchase if you get their retail credit card, the offer may sound tempting. In many cases, however, it's best to resist. While upfront savings are nice, most store cards come with higher interest rates than you would pay if you made those purchases with a general purpose credit card. So before you apply, consider whether or not you'll be carrying a balance, and if the answer is yes, proceed with extreme caution, because any discount you get at the register is likely to be wiped out by the interest rates you pay on the balance, not to mention late fees if you happen to forget that you have a new bill to pay. Also, be wary of taking these deals at multiple locations. If you have too many credit inquiries on your credit report, your credit score could suffer, which could result in higher interest rates on future loans. If you're not sure how many credit inquiries are on your report, check out Credit.com's free Credit Report Card. It will show you that information, your credit scores and break down the information in your credit report in an easy to understand way.
|Taking out a Payday Loan|
Payday loans come with average annual interest rates topping 400 percent, according to the Center for Responsible Lending. With so many other forms of credit available, there are very few occasions when taking out such a loan could possibly make sense. These may include the threat of getting evicted from your home, or a guy named Vinnie threatening to break your fingers. Otherwise, most people find payday loans to be exorbitantly expensive. No matter how cool the backpack or how stylish the new pair of sneakers, your child's need for school supplies simply do not justify interest charges of more than 400 percent, which will likely place you deeper into a financial hole. Consider shopping around for a personal loan as an alternative.
|Shopping When Hungry, Tired or Rushed|
Because back-to-school shopping has the aura of necessity, it's easy to make impulsive purchases. That's especially true when you walk into the store fatigued, starving, or at 11 p.m. the night before the first day of school. In addition to paying too much money, your distracted brain might cause you to make poor credit decisions, and end up throwing everything on a higher interest credit card because you are too tired to care. While this last point may not seem like personal finance advice, it is. Eat something before you shop. Take a nap if you can. Go early. By taking all the above common-sense steps to guard your finances and avoid credit mistakes, your child's schooling on important financial matters will start long before the buses start rolling again.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.