- Make purchases with a zero-interest credit card only. Any interest you pay for most credit card purchases you're not paying off by the end of the month will negate any holiday sales savings.
- Consider buying extra warranty coverage when the replacement cost for an item will be greater.
- When car shopping, look for lower loan rates at local credit unions.
Eager to take advantage of Presidents' Day sales, many shoppers may not realize how much holiday discounts on a range of items – from mattresses to home appliances and electronics to new cars – could really cost them.
"Consumers should look closely at the fine print and long-term financial impact of spending around the holidays," said Nicole Elam, president and CEO of the National Bankers Association, a trade group representing minority-owned and women-owned financial institutions. "For two reasons – the impact of inflation during a pandemic era and interest rates – what appears to be a deal may not be."
"I love a sale," said certified financial planner Kamila Elliott, CEO and senior wealth advisor at Collective Wealth Partners in Atlanta. But, before making that purchase, she said, it's important to answer three questions.
"You have to ask yourself: Do you need it? Do you love it? And, can you pay it off immediately?"
Before you charge the purchase to a credit card, remember this is one of the most expensive ways to borrow money. The annual percentage rate on a credit card is at an all-time high of nearly 20%.
"If you don't have the ability to pay off the credit card debt immediately, you're not even getting the savings from the sale because you'll be paying that interest over a month or several months," said Elliott, who is also a member of CNBC Financial Advisor Council.
Consider these three strategies to help save money while you shop for holiday sales:
- Use a 0% interest credit card: With this type of introductory offer, you may pay no interest for 12 to 18 months. Make minimum monthly payments (or a little more) over the promotional period. Your goal should be to fully pay for the purchase before the 0% interest period ends and the rate goes back up. Credit experts say that a cash-back rewards credit card with a 0% interest introductory offer may be an even better deal. Several cash-back cards give back a flat rate of 1.5% of the amount of your purchase no matter what you buy.
- Compare replacement cost vs. warranty: An extended home appliance or electronics warranty may give you peace of mind, but read the contract to see what exactly it covers. How long does the warranty last? Who will make repairs? How quickly?
Compare the warranty's cost over time to the replacement cost of that item, Elliott said. It may be more cost-effective to put that "extra" money in a special, savings account earmarked for a new appliance if yours breaks. In some cases, if the product is something you really need immediately – like your smartphone or laptop – it may be worth it to buy the warranty, Elliott said.
- Look for lower loan rates at a credit union: Many car brands offer Presidents' Day deals that lower the purchase price or interest rates or make lease deals more attractive. Still, with the rise in auto loan rates, you pay much more than you had imagined – or can truly afford to – drive the new car off the lot. Shop around and check out credit unions for lower interest rates.
The average price for a new car was over $47,000 at the end of last year. Monthly payments averaged over $700 with some consumers paying $1,000 or more. Instead of paying over 6% in interest on a 60-month car loan through a bank or dealership, check out rates at a credit union. You may find rates under 5%.
No matter what you're buying this holiday weekend, research the product's price history, said Consumer Reports shopping editor Mary Beth Quirk.
"If it's recently been on sale for a lot less, you have some wiggle room in terms of how soon you need the item, you may want to wait to see if it drops again," she said.
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