By now you've probably made your holiday shopping list and checked it twice to ensure you'll keep spending under control. But even the most carefully built holiday budget can crumble if you fall for the tricks grinchy companies use to get you to spend more.
Paying more than you planned to on gifts might damage your finances more than you think. A poll conducted by the Consumer Reports National Research Center in October 2008 found that about 12 million Americans had not paid off their previous year's holiday shopping bills. Watch out for these traps:
You may be buying more gifts with your debit card this year. Twenty percent of the 1,000 people surveyed by Consumer Reports in October 2009 said they were using their debit cards for purchases more than they did a year ago. But, convenient as debit cards can be, you could end up paying more than you expect when you shop with one.
For example, banks used to reject a purchase that exceeded the balance in an account. But many will now process the transaction and then charge customers an overdraft fee. Those charges range from $22 to $39 at 16 of the largest banks, according to a July survey by the Consumer Federation of America. Buying several gifts in one shopping trip, not to mention stops for gas and groceries paid with your debit card, could result in multiple fees.
In addition, more than 60 percent of the big banks impose additional "sustained overdraft" fees if the amount you owe is not repaid within a certain time period. If you don't cover it in seven days, Citizens Bank will charge you a total of $74; at SunTrust, it's $72.
Several major banks, including Bank of America, JPMorgan Chase, and Wells Fargo, recently announced plans to limit the number of overdraft fees consumers could face in a given day. The banks are also allowing customers to opt in or out of overdraft protection.
Use a credit card for large gift purchases, especially if you pay your balance in full each month. Credit cards offer greater consumer protections than other forms of payment if your account number falls into the wrong hands, or if you have a legitimate beef with a seller. That also makes them more suitable for online shopping.
You can use a debit card for small purchases if you're relatively certain you won't need the extra protection a credit card provides, and you're sure you won't exceed your account balance. Or use cash. It won't put you at risk of identity theft, and it's accepted almost everywhere. Just keep in mind that you won't have the leverage that a credit card provides in a dispute.
Many retailers promote deep discounts in "door-buster" sales, particularly ones that take place on Black Friday, the day after Thanksgiving, and the following Cyber Monday, when online holiday shopping spikes. The sales usually start in the wee hours of the morning and are on a first come first served basis.
Black Friday has earned the reputation as a bargain-hunter's paradise because retailers feature a limited quantity of highly sought-after toys or electronic items at or below cost to draw people in, hoping they'll buy lots of full-priced merchandise, too.
In a more deceptive version of these sales, an item is advertised at a super-low price on a Web site, but it's just a come-on designed to get you to buy something else and spend much more.
To protect yourself when you're shopping online, be wary of unrealistically low prices. Don't buy additional products or services just because you're getting what looks like a good deal on one. To be super-safe, stick with merchants you know.
Don't be worried you'll miss out on a great deal if you skip door-buster sales. It's very likely that another one will come along before the season ends. Last year we found plenty of so-called one-day sales that were extended.
But if someone on your gift list wants one of this year's "hot" products that might be in short supply, it's best to try to score it as soon as you can. Shop in the morning when the crowds tend to be light and the merchandise hasn't yet been picked through. The early morning is a good time to shop on the Internet, too; in previous years that's when some online retailers offered special savings.
You may do just as well by signing up for e-mail alerts from your favorite stores. Doing so ensures that you'll receive notification of sales and coupons not readily available to everyone.
Buying gift cards can shorten your holiday shopping time. There's no need to come up with an appropriate gift for the hard-to-please folks on your list, and you can buy the cards just about anywhere—even in your local supermarket.
But we generally advise consumers to avoid gift cards. Some come with purchasing and processing fees, expiration dates, transaction fees, and inactivity fees that unfairly diminish their value over time. And the recipient could end up with a worthless piece of plastic if a company goes out of business or files for bankruptcy protection after you buy its card.
There's also a good chance your card will go unused. A quarter of the people we surveyed last October who had received a gift card the previous year had not yet redeemed it. And since we all want to get discounts on our purchases, remember that gift cards do not go on sale, though they can be used to buy discounted goods.
In one bit of good gift-card news, American Express announced in September that it would no longer charge after-purchase fees on its gift cards. But it will still charge you $3 to $7 to buy one.
If you can't decide on an actual gift for someone, consider giving cash instead of a gift card. It can be used anywhere and carries no fees. If you do buy gift cards, try to stick with ones issued by retailers, which tend to have fewer expiration dates and fees than those issued by banks that bear the logos of credit-card companies like MasterCard and Visa.
But be especially careful of gift cards from retailers on shaky financial footing. Even if they don't go into bankruptcy, they might shutter some of their stores, making it tougher to spend the cards.
Many retailers relax their return policies during the holiday season. But don't be lulled into a false sense of security. If you want to return a gift the clock is still ticking, and it's up to you to find out the return rules you'll have to follow.
Some companies may have different return requirements for items bought in their stores, through their Web site, or by mail order. Kohl's, for example, doesn't accept returns by mail if the merchandise was purchased in a store.
Say the motion-activated carolers your nephew bought you that blare heavy-metal holiday tunes are just not your style. If they were bought online, even through a national retailer's Web site, you may have to wrap them up and ship them back instead of dropping them off at a nearby store. And you may also need the receipt, the box the gift came in, and the retailer's enclosed mailing label. If your nephew trashed the original packaging, you may be stuck with the carolers.
Many stores track returns, so if their software flags you as someone who has brought back too many items in a short period of time, your return may be denied.
Ask for a store receipt and a gift receipt for the items you buy. Wrap gifts in their original packaging. Tell the people you give them to about the retailers' return policies.
Check the rules before you try to return a gift. Online policies should be listed on the store's Web site. You can call the store directly or try its customer-service line for in-store and mail-order rules.
If you received a gift receipt, hang on to it. And take or send it to the right place. If the item was purchased by mail order or on the Internet, make sure you return the item to the address the retailer specifies.
If your return is denied and you don't know why, you may have been incorrectly flagged by a store's computer for committing "return fraud." You might be able to correct the matter by sending an e-mail message to the Retail Equation, a company that monitors returns for retailers. Go to theretailequation.com for information on why returns are denied and how to get a copy of your return activity report.
Many items, especially electronics like digital cameras, camcorders, desktop and laptop computers, printers, PDAs, and GPS devices, are subject to a 15 percent to 25 percent restocking fee if they are not returned in a factory-sealed box.
If you give or receive a refurbished item, it may also be subject to a restocking fee. You may even be charged a 15 percent restocking fee for some appliances, tools, and lawn and garden products if they are returned without their original packaging. Special orders, if they can be returned at all, may also be subject to restocking fees.
The reason for these charges is that merchants can't resell as new any item after the box has been opened, so they penalize you for opening it.
Don't open a package if you don't want what's inside. Items like computer software, music CDs, and movie DVDs aren't generally returnable after the seal has been broken.
If you are slapped with a restocking fee, try to negotiate a partial refund. But you shouldn't have to pay any fee if an item is defective when you unwrap it.
This holiday season shoppers are expected to spend $1.2 billion on extended warranties for electronics and appliances. Salespeople push hard to get you to buy these service plans because retailers keep a nice 50 percent or more of what they charge for them. That's much more than they can make selling the actual products.
But extended warranties are notoriously bad deals. Some repairs are already covered by the standard warranty that comes with the product. Consumer Reports' data show that products seldom break within the extended-warranty window—after the manufacturer's warranty has expired and within the typical two to three years of purchase. And when items do break, the repairs, on average, cost about the same as an extended warranty.
Our decades of brand research has demonstrated that products are reliable enough that we don't think you need extended warranties. But if you decide that an extended warranty gives you peace of mind, check your credit-card agreement before you buy one to see if charging an item on your card will provide similar coverage. Some credit cards, especially gold and platinum ones, typically lengthen the original manufacturer's warranty by as much as a year.
If you can't rely on your card's additional coverage, channel your inner Scrooge. Get the cheapest deal you can by including the cost of an extended warranty in your price comparison. Don't pay more than 20 percent of an item's purchase price for one.
This article appeared in Consumer Reports Money Adviser.