Why the Black Friday Deals You Scored Might Not Be Deals At All

November 23, 2007 By Matthew Paulson

As I write this article, millions of shoppers across the nation are invading retail stores hoping to get the best possible deals on their Christmas presents. We hit Wal-Mart up at 5:30 this morning and scored a new desktop computer for $399.99 and a Garmin GPS device for next to nothing! There are definitely some good deals to be had if you have the money for them. The problem is, that most people don’t plan for Christmas and end up borrowing money on their credit cards to pay for their Christmas presents.

The average family in the United States will spend around $850.00 on Christmas presents this year for friends, family and coworkers. That’s a huge number considering the fact that most people have very little money put away in savings, practically nothing for retirement, and lots of debts to be spoken of. The cash just isn’t there to pay for Christmas presents, so they charge them to their credit card and figure that they can take care of them at a later date, but how much are these presents really costing them?

Let’s say that you ended up spending $1,000 on Christmas presents this year and put it on a credit card with a 15.00% APR. The minimum payments you would probably expect to pay would be around $20.00 a month. Assuming you charged absolutely nothing on the card ever again, it would still take you 6 and ½ years to pay the debt off! You would also be paying an extra $579.00 in interest! Getting 10% or 15% off on a Black Friday deal doesn’t sound nearly as good when you’re paying a 58% fee to pay for your Christmas presents at a later date.

But what if you’re a “savvy” consumer and pay extra on your minimum balance? Is it okay to pay for your Christmas presents on your credit card then? Let’s take a look at the same example, but this time you are going to pay twice the minimum payment each month. It’s still going to take you two and a half years to pay for Christmas, and you’re going to pay $206.00 extra just to pay for your Christmas presents after the fact. Do you really want to be sitting 2.5 years down the road paying for your Christmas presents? How would you still like to be paying for your 2005 Christmas presents?

Fortunately there’s a better way to pay for your Christmas presents. Christmas comes in December each year, so it’s very easy to plan for. Decide how much money you want to spend on Christmas each year and divide that number by 12. Open up a separate savings account at your bank and have 1/12th of how much money you would like to spend on Christmas transferred each month to that. When Black Friday comes around each year, you can take that money out and spend it on Christmas presents. This way there’s no credit card debt to take care of after the Christmas season.