12 holiday money mistakes to avoid

CHICAGO — The holiday season is full of pitfalls that can drain your bank account.

If you're not careful, you can end up taking a year to pay for all the spending. More than 13 million shoppers are still paying off last year's holiday debts, according to Consumer Reports.

It's fine to cut back on gifts if your finances are stretched thin. But if you plan to join the holiday shop-a-palooza, remember that it's not going against the holiday spirit to keep your bottom line in mind.

"You have to be smart," says Gail Cunningham of the National Foundation for Credit Counseling. "Know how much you can spend in advance and don't get caught up in the holiday moment."

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Regardless of the size of your bank account, you'll save plenty if you can avoid common holiday traps. Some are laid by retailers hungry for cash while others are simply a result of poor planning.

Here's a look at 12 holiday money mistakes to avoid:

1. Discount fixation.

Retailers advertise deep discounts to get you to bite. But don't take them at their word without comparing prices. A store's sale price may reflect a markdown from the regular price, but there's no guarantee the manufacturer's suggested retail price isn't actually lower. Think more about the item you're buying.

"The stupidest thing people do is focus more on price than on quality," says Dan de Grandpre, editor-in-chief of Dealnews.com. "Especially on Black Friday. You see really low prices because in many cases it's cheap stuff."

Avoid unfamiliar brands, be wary of the cheap version of name brands and don't go crazy for bogus bargains on footwear, apparel, power tools or anything else, cautions Marshal Cohen, chief retail analyst at the NPD Group.

2. No budget.

Skipping a holiday spending budget is a surefire way to overspend. Make a list that includes amounts for each person you want to buy a gift for and stick to it. Be sure to create an overall budget that factors in other holiday-related expenses. Without a plan, you'll get caught up in the hype and go for the feel-good purchase.

The American Financial Services Association Education Foundation offers an online worksheet to help you create a holiday spending plan; visit www.afsaef.org/HolidaySpending.cfm. Besides planning your gift list, it helps you track spending on decorations, cards, travel and entertaining.

3. Debit dangers.

Debit cards carry the advantage of taking money from your account and not saddling you with future payments. But using them on big items is risky because they don't offer the purchase protections that credit cards do. For instance, if you fail to report any misuse of your bank account within two days, you may be liable for the first $500 billed to your debit card instead of the first $50.

If you have a problem with a purchase you made on a debit card, you may eventually get your money back. But it will be much more trouble and take longer than if a credit card had been used, according to the National Foundation for Credit Counseling.

4. Return policy missteps.

Tossing away receipts can be costly. Their obvious value is for exchanges or returns, but there's another plus too: If the price is lowered after you buy an item, a receipt should enable you to get a credit for the difference. Be aware that return policies are changing, however, and retailers are increasingly refusing some returns or giving gift cards for the amount in question. Certain stores are particularly diligent about tracking returns. If your credit card shows you return items too often, you may be stuck, according to de Grandpre. Also make sure you understand a website's return policy if you're shopping online.

5. Being low-tech.

Smart phones are changing how we shop. Scores of consumers are following their favorite brands and retailers on social networking sites likes Twitter and Facebook, and retailers are taking full advantage. It's much easier for businesses to launch and retract deals online where matching inventory with demand is less of a challenge. Coupons and last-minute offers can arrive as e-mail alerts or through social network accounts. Smart phone apps like Coupon Sherpa also provide in-the-moment help. It enables iPhone users to search coupons by category or store name, and find the nearest location. According to Deloitte Research, nearly one in five shoppers plans to use a cell phone during the shopping process.

6. Extended warranties.

Here's when to buy an extended warranty, says Greg Daugherty, executive editor of Consumer Reports: "Basically never." The manufacturer's warranty should protect you against any defect for up to a year, and the cost of protection beyond that generally isn't worth it. Instead of wasting anywhere from tens to hundreds of dollars on an extended warranty, put some extra cash in your emergency fund to help cover possible repairs or replacements.

7. Black Friday blunders.

Black Friday can be a shopper's dream. But long lines and overzealous crowds can really wear you down and make it harder to spend wisely. So map out a plan in advance and read the fine print on early-morning doorbuster deals. At 5 a.m., you may have a slim chance of landing the lone 45-inch flat-screen TV offered at one store and much better odds for the less spectacular bargain down the road. Planning is important throughout the shopping season. Check the website of each store you plan to visit for the latest bargains, and make a list of what you want to buy from each store.

8. Gift card gaps.

Give gift cards another look if you've spurned buying them because of fees and other issues. Thanks to recent rule changes, this is the first holiday season in which any gift card purchased cannot expire for at least five years. What's more, inactivity and other fees are banned in the first year. Still, you should beware of buying gift cards through online auction sites or classified ads. They may be counterfeit and could have been obtained illegally.

9. Shipping costs.

Free shipping is easier than ever to find. Giant retailers are dangling it as an inducement to spend. Wal-Mart, Target and J.C. Penney are among the retailers promoting free shipping programs. More than 1,000 merchants also are participating in Free Shipping Day (www.freeshippingday.com) on Dec. 17. Even if you don't get free shipping, don't wait too long or you'll blow your budget to ship to out-of-town friends and family.

10. Store credit cards.

Saving 20 percent on a single large purchase might sound worth it. But remember that retailers promote their store cards because they come out ahead on interest and late fees. Interest rates of more than 20 percent are quite common. That's what you'll find at the Gap and Macy's, among many others. Signing up for a store's credit card and then canceling after a short period, even if you pay it off on time, can harm your credit score. If you apply, be very selective.

11. Exposing your ID.

Grab deals from the comfort of your living room but take precautions to avoid becoming a victim of identity theft, which costs U.S. consumers more than $50 billion a year. Only do business with websites that are properly secure. A common indictor that it's OK to enter confidential information is the presence of a padlock in the address bar on the checkout page. This means that the data you input will be properly encrypted for your protection.

12. Fear of negotiating.

Prices frequently are negotiable in electronics, jewelry and department stores. Consumer Reports surveys on haggling have found that shoppers are successful more often than not when they ask for a better price. Just make the negotiations friendly. Daugherty suggests saying something like: "I'd like to buy this but the price is over my budget. Can you do any better?" Often the manager can if the clerk cannot. "You're not going to embarrass yourself," he says. "They've heard it before." Along the same lines, ask the cashier if there's a discount on your big item even if you don't have a current coupon.