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Gaudreau News
Think Before You Spend This Holiday
Reports from last week’s Black Friday holiday shopping tell the tale of shoppers who are using their credit cards a bit less than last year. According to a National Retail Federation survey of 8,692 consumers reported in the Wall Street Journal, an estimated 28.3% of people will be using credit to pay for holiday purchases this year. That number is down a surprising 31.5% from the same time last year. That’s the good news. Many shoppers have decided to cut back on spending and are opting for cash or bank debit cards where the money is deducted directly from a bank checking or savings account.
The bad news is that there are still large contingents of purchasers who are maxing their credit cards and spending more than they can afford. With credit card interest rates skyrocketing in advance of the February 2010 implementation of the CARD Act, purchases made now can last months or even years beyond their originally intended payoff date and cost Americans hundreds to thousands in interests charges over the life of the loan. Is that big screen Hi-Def 52” LCD television and Wii Console really worth an additional $1000 over the purchase price?
Before you pull your favorite credit card out of your wallet, ask the following questions:
- Can I truly afford the item I am about to purchase?
- Am I willing to pay an additional 15% to 30% above the purchase price, compounded annually?
- Will this purchase have an effect on my credit score? FICO® scores or debt percentage, generated from a credit model developed by Fair Isaac Corporation, are based on the ratio of credit card debt to limit on the card. If the overall balance is lowered, your credit score cab tumble. A lower credit score can negatively affect many areas of your financial life such as what you will pay for home and auto insurance premiums, potential employment opportunities, and future creditworthiness. Is the purchase you’re considering worth that lasting impact?
- Will this come close to maxing out my credit card? If charge exceeds your credit limit, remember that your interest rate and fees will increase via ‘over the limit fees’. The agenda of the credit card industry is to ensure that any credit card payments made are applied first to fees and interest and not to principal balances. This payment application prevents you from reducing your overall balance, causing even higher interest fees and propagating the credit cycle that is so difficult break
Consumer credit has eroded from last year leaving little funding available in the credit market. Even consumers with good credit are receiving letters from their credit card company outlining an increase in their interest rate and a reduction in credit card limits. This shift is resulting in Americans who have little buffer room in the event of a true financial emergency. Should a car need repair, the home furnace breaks, or even a family pet requires veterinary attention, there are few financial options available. Leaving emergency space on your credit card is a smart move for many reasons. In these challenging economic times, no one is safe from having their credit revoked, so use existing lines of credit wisely.
Despite all of the shifts in unemployment rates, a slowly recovering credit market, and lagging consumer confidence, the average credit card balance rose to $8,083 in the third quarter of 2009 compared to $7,489 in the second quarter, according to the credit card direct-mail service, Mail Monitor. Reasons for the shift may be attributed to consumers living on credit due to unemployment, economic hardship and other financial constraints. The end result is a large percentage of consumers juggling credit cards at their max or exceeding limits altogether.
The best gift you can give yourself and your family is peace of mind and financial stability. If that means cutting back a bit and bringing back simpler and more inexpensive traditions, do it. If you’re feeling bad about your financial situation, take a walk down to your local homeless shelter, food bank, or Salvation Army. There is much work to be done and many hands make light work for all. You have the power to positively impact your family and your community this holiday season with contributions of time. That’s a gift that returns good Karma for more than just one day.
About Richard Gaudreau, Esq.
With over 20 years’ experience in practicing law in New Hampshire, Attorney Richard Gaudreau is Board Certified in Consumer Bankruptcy Law by the American Board of Certification and New Hampshire chair of the National Association of Consumer Bankruptcy Attorneys. He has represented hundreds of bankruptcy clients in both New Hampshire and Massachusetts and handles each case personally. For more information, contact (603) 893-4300 or visit the web site at www.attorneygaudreau.com.