Gather Little by Little

Photo by: Marianne Perdomo

This is a guest post by Jim, who normally writes over at Blueprint for Financial Prosperity and My Retirement Blog, who saw the sad empty post and wanted to help. :) Glblguy says: Thanks Jim! Nothing worst than a sad empty guest post!

Occasionally on BFP I’ll write posts in which I list promotional offers such as the Revolution Money Exchange promotion or a Sharebuilder promotion code or some free money credit card offers. With the RME offer or Sharebuilder codes, it’s a pretty straightforward offer with little downside. The credit card offers are different, they look soft and cuddly but they have some pretty sharp teeth you need to be aware of. I wanted to discuss those offers specifically because there are substantial negative impacts to taking advantage of them and you should be aware of them before you sign up.

The most significant of the negative impacts is on your credit score. Applying for credit cards will lower your credit score. That’s a known and accepted fact. Numerous inquiries in a short period of time is reason code Y in the derogatory statements for Experian (Y – Inquiries impacted the score but not significantly), I know because I saw it on my own report!

This makes sense if you look from the perspective of the lender. If you are making numerous loan requests, which is essentially what credit card applications are, in a short period of time, they want to know why. People who need money are the last people banks want to lend to and, in this credit environment, this could result in increased rates or even push you into a group they won’t extend a loan to! So a $100 gift card in your pocket today, may have a significant downstream impact in your life. If you’re planning any major purchases that require loans, such as a house or a car, don’t do these offers. A $100 gift card is nothing if it raises your mortgage rate by even a tenth of a percent (or makes you ineligible all together!).

Another negative impact is that you’ve just opened a credit card you probably didn’t need. In the best case, you stick the card in your drawer after you’ve fulfilled the promotional requirements and you cancel it (that’s another ding!). At worst, you start spending on it and it’s another piece of plastic taking up another spot in your wallet or purse and another spot in your personal finance mind. That’s one more statement you’re getting, one more bill you have to pay, one more bill you have to scan over for problems, and it’s complicating your life all for a $50 or $100 gift card. A hundred bucks is nice but there’s something very Zen about simplifying your finances and maximizing your life.

Finally, most of the gift cards are to places you normally won’t shop often at, like furniture stores. In some rare cases, you might be able to get gift cards to a restaurant you frequent (or would like to go for special occasions) but most of the time it’ll be to a place you wouldn’t have otherwise gone to and be, unconsciously, compelled to spend more than the value of the gift card. If you have a $50 gift card, how many times will you be able to walk out with exactly $50 of stuff? How many times have you had a gift card, gotten close, but then looked for some piece of junk little $5 or $10 item to clear out the card? I know I’ve done it numerous times because I didn’t need $2.49 on a Bed Bath & Beyond gift card. That extra spending is probably not in your budget (it might only be $5 over… but still) but that’s part of their plan! (I may not have needed to tell you that the credit card company’s plan is to try to get you to spend more money… haha)

Credit card offers are just one example, a big example, of how a promotion may not be all that it’s cracked up to be, but it’s certainly the biggest one. So the next time you see any kind of promotion, always be aware of the downside before you sign up.