Black Friday is a time of year that many people look forward to, some even more than the actual holiday of Thanksgiving the day before. This is due to the nationwide focus on creating specific door-buster deals for this day, with some being so great that people actually fight each other and push and shove to get their hands on a product first. There is no issue with waiting to shop on this day for Black Friday deals, I encourage finding deals and saving a buck. But stores are creating more ways recently to get the consumer in trouble by over purchasing, one of these is the in store financing and payment plans. These can be quite a drag on your personal finances in the long run.
Tryptophan (compound in turkey that makes you drowsy) in the turkey this Thanksgiving may help you sleep after your big meal. But don’t make a poor financial decision that night on a sleep deprived Black Friday store raid and get sucked into a payment plan or in store financing option that could make you lose sleep for months to come!
In store financing is becoming more and more popular through various loans and credit availability, along with the ever growing consumer culture in America. This recent increased availability mixed with the cultural consumer holiday of purchasing items on sale in mass amounts can lead to impulse purchases.
Let’s look at an example of something that is quite common now on big ticket items like a TV. You may be fired right up on Black Friday and looking up at that big new flat screen you know you can’t afford, dreaming of it on your wall (I do this each time I walk by the TV section in stores). You can’t afford it and you know it, but then that innocent store salesmen educates you on how easy it would be for you to purchase it today by putting it on a payment plan using in store financing.
Yes, people out there are financing many different products now including televisions. This shouldn’t be surprising though with how easy it is and how available these financing plans can be, it makes the option seem pretty darn smart and easy when you’re in a store. For example Best Buy (a store I love to spend time in mostly dreaming) is advertising 6 to 18 month financing store wide for purchases this year. But as I looked further I found options up to 24 months.
Example of financing ad: Best Buy new 75” LED TV for 24 payments of 95.84$ over 24 months.
That equates to a cool $2299.99, which is more than enough for a heck of a nice TV these days. But you may be overshooting your budget, and wouldn’t even ponder the thought of paying that much for a TV normally… but that big TV could be all yours and impress your friends. The thing is all you focus on is that 50$, without thinking of how long that 32 months is or the real price of well over $2,000.
This shows how easy it is to get sucked into those plans, simply by our psychological inclination to focus on the smaller price rather than thinking of the larger real price and longevity of payments, because it is something we want.
I am not ripping on Best Buy here, I promise I do like this store, this is just a specific store that I have seen this with because I shop there at times myself. These plans are very popular with stores recently because they make it easier for their customers to justify a big purchase. Their current financing plan like many plans in stores across the nation requires you to charge the amount on their credit card and make qualifying payments. If the full amount is not paid by the end of the payment period, in this case 6 or 18 months, interest is charged on it back from the purchase date. That will be a hefty amount of interest payments and is where the company makes even more money on the customer over top of the purchase price.
Furthermore, this interest rate is now on a credit card. So effectively, you are getting into credit card debt when you decide to make this purchase. The APR on these cards can range from 10% to upwards of 25% interest rates. So that is another reason to avoid these, as you are putting a large balance on a credit card held financing plan that may have lower or no interest within the period of payment. But in exchange for that novelty you are paying a large interest rate if you forget a payment or don’t have funds to complete the payment in time. If you put those payments off for any reason such as an emergency comes up or other debts need to be paid as well, it is easy to get behind. And when you are past that payment period they charge you at that ungodly high interest rate and back date the interest to the date of the purchase in some situations.This can be a big blow to anyone’s finances so let’s try to avoid the marketing ploy of in store payment plans.
Another big piece to take away from that plan is that in most cases you are signing up for a store credit card to be able to participate in these plans. And opening a new credit card just to get a discount or payment plan is never a good idea! Opening the card opens up a pathway to more bad decisions with this card and can further get you into a whole here, just because it felt like a good idea to buy that shiny TV.
Opening a credit card also is a new line of credit which will directly affect your credit score. So this purchase is going to not only put you under financial duress while making payments in the future, but also will negatively impact your credit score; Now I’ve got your attention!
Yes, when you open up that store card they will pull your credit report and this instantly lowers your score. Then the new line of credit will show up on your report, which will also lead to lowering your score further in the near future as your “age of credit” will decrease as a result of the new account.
These financing plans are available all year long, yet there are many reasons why Black Friday this becomes even more of a problem. This is a holiday created for sales to entice the consumer to get all giddy and purchase things that they may not truly be able to afford because they believe they are getting a “deal”. There are cases where if you budget for this and make purchases here strategically Black Friday can really be a good savings opportunity. It is the impulse purchases and getting into Black Friday financing plans like these that can leave a bad taste in your mouth and in your wallet.
Black Friday Shopping Tips
Like I prefaced at the beginning, I don’t believe Black Friday is a bad thing. This national holiday has many advantages due to the great deals you are able to get when you plan and make informed purchases.
One thing you want to do is set a budget and stick to it. Deals have a way of making you spend more on something than you otherwise may have. There are many things that pull you up to a higher price mark due to the fact that the deal appears to be so good that you might as well spend a little more than you had planned. This is easy to let happen so go in with a limit and don’t let yourself pass it.
Another method is to save ahead of time for these Black Friday deals if it is something you like to do. You can save and spend cash at the stores, or use a debit card so that you are spending your own money and not buying on credit with looming interest. It is much harder to justify spending when you are holding the cash, we have all felt the power of that. Therefore, this may save you from splurging on something you don’t need or truly want when it isn’t right in front of you. With this method you will have more finite cash on hand and won’t be able to go over your budget if you buy with cash, since you won’t have more with you.
Those who have more discipline and are very strict with paying their balance in full at the end of the month may safely use credit cards as well. The credit card users will also benefit from this method by saving up your budget prior to making these purchases. This will allow them to use the card to get their credit card reward points or cash back, and then have cash reserves set aside to quickly pay that balance off right after the purchase.
Don’t just bite at the first deal you see. Target specific items and look at the deals available at different stores and really put in the research to get the best deal you can, that is what this holiday is all about anyway right?! If done effectively you can save yourself a big chunk of money on something you may have purchased on a later date anyway for a lot more cash.
Black Friday can be a positive or a negative experience, this article will hopefully give you some tips to go out on Black Friday and be prepared to shop properly and save on those items you can’t live without! Enjoy and be safe out there!
Thank you for reading, I hope you learned something that you can put to use out there!
How do you approach Black Friday? What are some items you have bought on sale due to the “deal” and regretted it later?
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