When Things Aren't On Sale

There is a time when things aren't on sale-no matter what the store sign says, what's written on the price tag, or how much the cashier actually charges. When is this? When you pay with your charge card.

How many times have you snatched an item off the shelf because it was unbelievably priced, then you paid with a credit card? Credit cards are great for spontaneous purchases, but if there are too many spontaneous purchases they start to counteract the sale that pleased you so much.

The Problem

Think of it this way. You're shopping for a new set of golf clubs to start golfing with your friends. Expensive, right? However, as you wander through the sporting goods store a floor model set which sells for $450 is priced at $300. Grab it!

This isn't a bad deal if you have the $300 set aside to pay for them (or at least you will by the time the credit card bill comes.) However, if you are like most people, you will carry a balance on that card. Paying a minimum of $20 a month plus interest will take a little less than a year and a half to pay off with $27 in accumulated interest charges (13% APR). Still, this isn't a bad deal.

However, if you apply the previous logic to a sweater that is on sale for $6 off and add it to an already mounting credit card bill, things change. If the sweater is $34 on sale, you're adding $34 to a bill that already isn't being paid. Suppose you still make the $20 monthly payment, but your balance is $1238. It will take six years to pay off this debt (assuming you never add to it) and you will pay $488 in interest (13% APR.) Rather than save the $6, apply the $34 towards your monthly payment and reduce that $488 interest to $193.

The premise is simple - you're not saving on sales if you're adding to accumulated debt.

The Benefit

Credit cards can be great. They come in handy for unforeseen costs such as an erupted hot water tank or an emergency flight to see a family member. However, there is a way to manage them responsibly.

Keep your balance manageable on your card. If there is a month that asks for the sudden flight to Aunt Jo in Denver, then avoid using the card again until this emergency is paid off. Likewise, if those golf clubs are on sale and your card carries little or no balance, buy them. Even at paying the interest you're saving $123 on the set. However, the sweater isn't worth it.

Have trouble keeping your hands off your credit card? Try this trick. The first is to keep the card in a lock box at home rather than in your wallet. Yes, revolving balances and internet purchases are still possible, but the temptation of a shopping spree at the local department store which is having a blowout sale will disappear. If something is on markdown, the drive home to get the card will make you think further about the purchase and its validity.