As kids across the country embark on that saddest of journeys back to school after a summer of fun, wondering where all the time went, many parents may be having a similar reaction to the frenzy of back-to-school shopping and where their money went.
While getting a child equipped for school is never a cheap date, for families who have a limited budget (or no budget at all) this time of year can be stressful, especially with a series of expensive holidays on the horizon.
Here are seven common back-to-school shopping mistakes you may have made this year, and some help for avoiding these pitfalls next year.
1. You Didn’t Work Out a Budget Beforehand
If you had a problem with cash flow, one of the biggest mistakes you could have made was to wade into the back-to-school swamp without a budget. Like the dreaded ad lib speech on the presidential campaign trail, stream of consciousness shopping is never a good idea. Before you set out, determine your financial threshold for pain, and don’t stray from the school’s list of requisite supplies.
Unless it’s absolutely necessary (or a family bonding exercise), consider shopping without your kids. You can browse together online before you hit the pavement (or the Internet version thereof). Self-expression is a wonderful thing, but you may be pressured into overspending if they’re with you and insist on “needing” things that aren’t on your list.
2. You Used the Wrong Credit Card
If you count yourself among the millions of Americans who don’t – or can’t – pay off their credit card debt at the end of every month, hopefully you picked your card carefully. Whether you figured out how to use the card with the lowest interest rate or decided you’d rather shoot for the best rewards, if you didn’t take a moment to think about which card could do the most for you (or the least amount of harm), you may be regretting it in the months to come. (Furthermore, if you’re carrying a balance on a rewards card, you’re probably paying more in interest charges than you’re earning back in rewards. It’s something to keep in mind.)
Forgot the exact terms of each of your cards? You’re not alone, but you’re not out of luck, either. They’re posted online and it’s very much worth checking the fine print before your statement comes.
3. You Used Credit When You Had Cash
The amount of your available credit that you’re using makes up about 30% of your total FICO score. If you’re carrying a balance, keeping it at no more than 30% of your available credit — though 10% or less is even better – is a good way to maximize that factor in your credit score. If you are pushing the limits of your available credit, you might want to consider paying cash instead.
A good rule of thumb: If you don’t have the cash, pretend that’s what you are using. It will curb your spending. Be a smart shopper. The last thing you want to do, when you’re approaching the end of your credit runway, is add more debt.
If you decide to use a credit or debit card, decide exactly how much you want to spend, and stick to it. The same thing applies to budgets as to diets: It’s the sips and nibbles that get you in the end. Discipline should be your watchword.
4. You Missed a Chance to Earn More Rewards
You could have all the available credit in the world and yet still you messed up because you chose a lousy rewards program. When it comes to this, not all credit cards are great, or even good.
Your credit card company may offer quarterly rewards deals, but you still have to take advantage of them—and the first step is most often reading your offers. Doubtless you get a whole lot of promotional mail, but it’s worth actually looking at some of it. In addition to a discount, reading correspondence from your credit card company – in this case, your statements – can be the Paul Revere moment for various kinds of fraud, something I explain in my forthcoming book, Swiped.
What do these offers look like? Some back-to-school rewards programs might offer savings on school supplies or kids’ clothing.
Always shop around, because “your mileage” may vary and there are often great deals out there.
5. You Applied for a Store Credit Card You Won’t Use
The 5-10% discount that most retailers use to lure you into signing up for their credit card might have been too good to be true, or rather, it was nowhere near enough of a discount to offset the higher-than-average interest rates they often carry. Store credit cards can be used wisely to get good discounts, but if you won’t be returning to the store often, you may not be able to use them.
Additionally, you may have dinged your credit score if you applied for too many cards on your back-to-school journey. If you’re not sure how many inquiries are on your report, you can get a free credit report summary from Credit.com. It can show you that and a whole lot more, including your credit scores and a breakdown of the information on your credit report, in a consumer-friendly way.
An added warning: It can be quite easy to miss a store credit card bill since you aren’t using it often. Make sure you keep an eye out for any bills, since missing a payment can drop your credit score significantly.
6. You Took Out a Payday Loan
Payday loans come with average annual interest rates that can top 400%, according to the Center for Responsible Lending. However, there are often alternatives that can be less pricey – but you have to do your research. Many studies have shown that payday loans can lead to repeat borrowing — creating a financial hamster wheel of sorts that often ends with the hamster (that would be you) both fiscally exhausted and facing a much bigger debt than originally anticipated.
Next time around, if you know you won’t have the cash to cover the back-to-school necessities, consider shopping around for a personal loan as an alternative.
7. You Shopped Hungry, Tired or Without Enough Time
While it may not seem like personal finance advice, (dare I sound like your mother) you should eat something before you go shopping. If you’re hungry, you’re distracted. If you’re distracted, you’re more likely to let your budget slide, or give in to the pleas of a whining child. It’s always best to find a time to shop when you feel well-rested and unrushed.
If you made any of the above mistakes, it’s not the end of the world. Building good credit is all about progress, not perfection. Hey, there’s always next year.