On October 8th, 2013, I published my first list of clues that you might be a financial zombie. I will be addressing each of those clues (11) individually plus any others posted during the month, with the goal of counteracting the financial infection.
Why do stores offer 10% or 15% discounts on purchases if we open a store card with them? Simply put: to make money, of course!
Stores know that a large percentage (usually around 60% to 70%) of their customers who open up a store card will end up carrying a balance on that card from month to month and will therefore pay interest on their account. That means that their money is making more money. Why wouldn’t a store move in that direction?
In an age where probably half of the revenue earned by a furniture store, a department store, a technology and entertainment store, an appliance store, and even a car manufacturer comes from finance charges, we need to expect them to offer us small, one-time discounts in exchange for an “unlifetime” of financial zombie servitude to them as creditors. It seems that car companies are no longer manufacturers who sell vehicles but rather financiers who happen to sell cars. The same can be said for just about any major consumer product manufacturer.
So here are my top tips for all Financial Zombies drawn to such gratuitous offers of “killer” deals on credit:
- Just say “No” to begin with. Recognize that putting the purchase on credit, unless you’re extraordinarily (meaning far beyond average) disciplined, you will likely spend much more in interest charges than you have saved on the cashier discount.
- If you do accept the offer, pay it off immediately, as in, well, immediately. Don’t leave the store until the account is paid in full. Some stores allow you to make a payment on store accounts right there at the cashier. Others require you to go to their customer service desk. Either way, since you were planning to pay for the purchase already, take an extra minute or two to pay your new account back down to $0.
- Shred the card when it arrives in the mail. Whatever you do, do NOT carry it in your wallet or purse. Cards in wallets and purses get used, and that means we will end up paying additional interest.
If you struggle to overcome the “infection” that leads you to accept all discounts offered, commit to yourself now that you will never become a Financial Zombie wandering from one store card to another. For the vast majority of consumers, these credit accounts are not worth the purchase savings, and for a smaller group of consumers, these offers are actually highly destructive forces in their financial lives.
Would you please take 30 seconds to answer the following question:
Have a great day!