Photo“Do the math first.” That’s our first rule of responsible consumer spending: if ever you buy something on an installment plan (whether dealer financing, credit card payments, bank loans or anything else), don’t focus only on whether you can afford the weekly or monthly payments—do the math first, to calculate your total cost.   

But if “do the math first” is our first rule, “keep doing the math” might be our second, especially regarding credit cards and other financing forms where the terms and rates are subject to change all the time.

Last week we heard from a savvy consumer, Donna P. of Spring Branch, Tenn., who kept doing the math regarding her Best Buy credit card and reward points programs — and that’s how she realized some recent changes weren’t in her favor.

As Donna told us on Nov. 23: “I just found out about the change in point earnings. Turns out if you choose a no-interest finance option then you get 0 reward points! So, basically, if you choose to pay 26+% interest on your $1,000 purchase then you will earn enough points to get a $50 certificate—but you will pay over $300 in interest over 18 months! Some reward there!”

Yikes. In fairness to Best Buy (which, after all, is a for-profit company, not a charitable institution), any credit card company offering “reward points,” “cash back” or other free stuff is paying for it not out of its own pocket, but from the interest charges collected from its debtors.

However, with most credit cards we’ve seen, if you personally pay off your charges early enough to avoid interest fees, then you personally can still get the “free” rewards; the credit card company has enough customers paying high interest rates every month to give you your free stuff and still make a hefty profit. Or, as a friend of ours likes to say, “The irresponsible credit card users pay for all the neat stuff given to responsible credit card users.”

Sounds like Donna can’t do that anymore, at least not with Best Buy. So what will she do? “I have been an elite member for years. I am so upset I will probably cancel my Best Buy card and no longer shop with them. Supposedly the change was effective in July and nobody at the store every made me aware there was anything different. They are big on offering the promotional financing, but not in explaining you will not be earning points!”

Keep doing the math

PhotoAgain, in fairness to Best Buy, we can’t think of any company that’s big on pointing out “This offer of ours might sound like a good deal for you, but if you do the math you’ll see it’s really not.” That’s why we like to say “Do the math first” and “keep doing the math” — because a company offering a bad deal has no incentive to do the math for you.

On a related note: holiday gift-buying season is upon us, and a good-quality, multi-function calculator with long-lasting batteries can easily be had for under $10. If you don’t have one already, buy one for yourself before you buy gifts for anyone else — because when you buy those gifts we’ll still say “Do the math first!” and a calculator makes doing the math a lot easier.

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