Back-to-school shopping has millions of Americans reaching for their credit cards. That may be a convenient solution, but it can also be an expensive one.
Depending on how you use credit, financing back-to-school shopping can add hundreds of dollars to the bill. So, before you start, make sure you think about ways you can save money by using credit wisely.
Back-to-school shopping isn’t cheap
Back-to-school shopping is a huge business. For U.S. retailers in total, it can mean more than $30 billion in sales.
Of course, a big payday for retailers is a huge expense for parents. A Deloitte survey found that parents tend to spend an average of $586 per child on back-to-school shopping. And that’s just the beginning.
For many families, that dollar figure is multiplied by two or more children. On top of that, extracurricular activities add to the bill for most kids.
According to the survey, eight out of 10 parents plan to enroll their children in extracurricular activities. They plan to spend an additional $582 on equipment and supplies associated with these activities. That nearly doubles the cost per child.
Obviously with different sized families and different participation in extracurricular activities, these figures create a range possibilities for how much back-to-school shopping can cost. For the purposes of illustration, consider a low-end and a higher-end example:
- Low-end example: one child, no extracurricular participation; cost of back-to-school shopping: $586
- Higher-end example: three kids, each participating in one extracurricular activity; cost of back-to-school shopping: $3,504
Most families can’t take costs like these in stride. Affording back-to-school shopping takes some careful planning.
Using credit for back-to-school shopping adds to the cost
Many households have seen their paychecks stretched and their savings diminished. This makes using credit to pay for back-to-school shopping their only viable option.
Last year, a CNET Money survey found that 43% of households used some form of borrowing to finance back-to-school shopping, with credit cards being the leading method.
Even households that have the resources to pay for back-to-school shopping out of pocket often use a credit card anyway. This may be for a variety of reasons, including:
- Easiest way to pay for online purchases
- Using a credit card is more convenient than carrying cash
- They’re seeking to earn rewards for their purchases
Whatever the reason you use a credit card for back-to-school shopping, the key is how quickly you pay off the balances resulting from those purchases. If you don’t do it immediately, interest charges will add to the cost.
The problem is, as a whole American consumers have been building credit card debt over time. That implies they are carrying long-term balances, rather than paying their balances off quickly to avoid interest charges. This adds considerably to the expense of back-to-school shopping.
➤ SEE MORE:Are Americans paying down the wrong types of debt?
How much cost does back-to-school shopping on credit add?
To figure out how much more it costs if you carry a credit balance to finance back-to-school shopping, go back to the low-end and higher-end scenarios mentioned earlier.
The low-end scenario involved one child and no extracurricular activities. In that case, the shopping itself is expected to cost an average of $586 this year. However, if you carry that balance on your credit card for 12 months, assuming you have average credit it would add another $133.37 in interest for a total of $719.37. If you continued to carry part or all of that balance, that total would continue to grow.
If you have a low credit score, it could be even more expensive. At the time of this writing, the latest CardRatings interest rate survey found that credit card rates for poor credit customers ranged as high as 35.90%. At that rate of interest, carrying a $586 balance for a year would add $210.37 in interest charges, for a total of $796.37.
That’s just the low-end scenario. In the scenario described earlier with three kids, each participating in an extracurricular activity, the back-to-school shopping bill was $3,504. At an average credit card interest rate, you’d add $797.51 in interest charges if you carried that balance for a year. That would bring the total to $4,301.51.
If you have poor credit, the interest charge in that scenario would add $1,257.94 to your costs, bringing the total to $4,761.94.
In short, using a credit card to pay for back-to-school borrowing may be convenient, but if not done right it can add a lot to your expenses.
➤ FREE TOOL:Credit card interest calculator
Tips for reducing back-to-school borrowing costs
Here are some tips for reducing those back-to-school borrowing costs:
- Choose your credit card wisely. Before you head out the door, think about which credit card you should use. In particular, if you’re going to take a while to pay off your balance you should choose the one with the lowest interest rate. You might also consider which has the best rewards for the type of purchases you’ll be making.
- Consider a new credit card. If none of your cards seems particularly well-suited to your needs, it might be time to shop for a new card. Finding a card with good terms plus a sign-on bonus could reduce your costs both now and in the future.
➤ SEE MORE:How to pick a credit card for back-to-school shopping
- Spread your purchases throughout the school year. You don’t have to make all your purchases for the year ahead at once. Spreading them out can help you use less credit.
- Use online resources to shop for the best deals. Even if you’re planning on shopping in person, look at the websites of retailers you plan to visit so you can focus on the ones with the best prices on the things you need.
- Watch out for spending creep. As much as possible, figure out what you’re going to buy before you head out to the store, and don’t deviate from your plan. The Deloitte survey found that 85% of back-to-school shoppers can be influenced to splurge on particular brands and products that their kids insist on. Fifty percent of shoppers give into the temptation to buy something for themselves while shopping for their kids.
- Plan for accelerated payments after you borrow. If you use a credit card to pay for your back-to-school purchases, pay the balance off as quickly as possible. Always try to pay more than the minimum payment required on each statement. Otherwise, your debt will drag on and the interest charges will grow.
Getting kids ready to go back to school is a hectic time, but don’t be rushed into bad decisions. Planning to use credit wisely can help prevent a big expense from getting even bigger.
