Store Loyalty Programs Can Have Hidden Costs

Store loyalty programs can be a great way to save green, but if not used properly, they could put your finances in the red.

That 20 percent off coupon from your favorite clothing store can help you save if you already have a sweater for Mom on your shopping list. But do you really need that three-tier scratching post for Fluffy or heated dog bed for Fido just because you can save$10 on your purchase?

Store loyalty programs can be a double-edged sword. While they reward regular customers by offering meaty coupons and discounts, often without charging membership fees or linking rewards to store credit cards, they also can tempt shoppers to buy things they don't need, simply to get a good deal.

And reward programs are often tied to how much you spend, so the more you buy, the bigger the discounts, encouraging you to spend even more.

"Don't take what should be a reward and have it become a punishment when you get your bill," says Todd Mark, vice president of education for Consumer Credit Counseling Service of Greater Dallas.

A 2008 study by Colloquy, a firm specializing in loyalty marketing, found there were more than 1.8 billion loyalty program membership sin the United States, up nearly one-quarter from 2006. That translated to more than 14 loyalty memberships per household.

Retail loyalty programs accounted for more than700 million of those memberships. Programs that weren't tied to credit cards weren't separated out from those that were.

Book stores were, by far, the most popular for their loyalty programs, with 62 percent of respondents enrolled, a study by FirstData, a technology and payments processing company, found in 2008. For the 500consumers surveyed, pet store loyalty programs came in second, at 31 percent.

Store loyalty programs appeal to both consumers and businesses. Shoppers like the discounts, while businesses know it's easier to keep a customer than attract a new one, Mark says

If you're a fan of a particular store and plan to shop there anyway, it can be a good move to use store coupons or discount certificates to reduce costs. On the flip side, Mark says, it could mean"paying 80 percent for something you had no intention of buying in the first place. That could equate into expensive debts you didn't budget for."

But there are ways to use the programs effectively, without running up debt.

Money can't buy you loveIf you receive a 20 percent off coupon from your favorite retailer, it can be tempting to run out and buy something for Mom that normally costs $100, knowing that you'll pay only $80. But if you only had $50 budgeted for her gift, "don't let it (a discount) enable you to spend beyond your budget," Mark says.

Deals often get better closer to Christmas Day, as retailers hope to close out their year with strong sales. So someone who finished his shopping early might feel the urge to go out and buy more, thinking, "My kids will love me more," Mark says.

Stick to your gunsDavid Jones, president of the Association of Independent Consumer Credit Counseling Agencies, urges consumers to draw up a holiday shopping list and a budget and "don't veer from it."

If you've planned to spend $50 on a pair of jeans for your son, and you get a $10 off coupon, rather than spending $40for the jeans and $10 on something else, Jones recommends sticking that extra$10 in the bank and using it to pay off the holiday shopping bills when they come due.

Shop year-roundCate Williams, vice president of financial literacy for Money Management International, says consumers who receive store rewards should think about how to use the programs for holiday gift giving not only at Christmas time, but throughout the year.

Williams failed to read the fine print on a discount from an office supply store and let a $43 reward slip through her fingers by not redeeming it before it expired. She could have used that money to buy a nice pen as a Christmas gift. "Then they (discounts) really are found money."

Keep a trash can handyIt's crucial to understand your own shopping habits. If a coupon is enough to prompt you to run off to your favorite store to buy something you don't need, don't enroll in store rewards programs, says Mike Sullivan, director of education at the credit counseling agency Take Charge America

"You don't want to be tempted by 10 different coupons coming in every month," he says. "If you do it (store rewards programs)correctly, you throw away an awful lot of coupons and an awful lot of opportunities."

Comparison shopThat discount offer in your mailbox or e-mail in-box may encourage you to buy from your favorite store."One of the great dangers is you don't do comparison shopping," Sullivan says.

Without comparing prices,there's a good chance you'll spend more for the item, just because you want to buy from the place that sent you the discount.

How much will it really cost?If you do use a credit card for your holiday shopping and carry a balance, you need to be sure to compare the discount you receive against the APR on the credit card, Mark says. You might be getting a10 percent discount, but your credit card interest rate might be 15 percent.

If you do charge items, Mark urges consumers to have a plan in place to pay off balances before tax time. If not, you'll likely still be paying for your Christmas purchases by the time the next holiday season rolls around.

Marlene Aborn, of Medford, Mass., has nearly perfected the art of using store discounts. Five years ago, she'd get a discount offer in the mail and immediately run out to see if there was anything in the store she liked.

The self-proclaimed shopping nut says her attitude has changed, driven by the economy. Now she looks to see if she can use the discount on sale or clearance items and checks the store's ads to "see where Incan get the most bang for my buck."

For those who can't avoid the siren song of store loyalty programs, Mark warns that rather than receiving reward, you may be rewarding retailers "by spending more than you ever planned."

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