Consumer revolving debt — mainly credit card balances — grew by $4.2 billion in September, according to the Federal Reserve. America’s total revolving debt reached $978.8 billion, the highest level since April 2009, when the economy was going downhill fast.
Projections of spending during this holiday season vary, but it’s likely that many of us will charge more for holiday gifts than we should. Here are some suggestions for preventing the buyer’s remorse — and interest charges — that can follow aggressive use of credit cards.
Pay cash. The simplest solution to avoiding interest charges is buying with cash. Parting with real money can also help to keep impulse spending in check.
Make a list. Check it as many times as you like, but write stuff down before you visit the stores, real or online. Itemizing what you intend to buy helps to keep your shopping focused, and that can minimize stress as well as curb impulse buying. While you’re writing, devise a place to keep all your receipts, whether they’re paper or digital.
Charge only what you can afford. Buy something with a credit card and you get what amounts to an interest-free loan. However, that’s true only if you pay off your balance in full by the due date after you receive your monthly statement — what’s termed a grace period. If you pay in full month after month, you’ll get a break on new purchases but NOT on cash advances or convenience checks. Those generally start accruing interest immediately. Some balance transfers may also not be included in a grace period; read the terms of your card carefully to see what terms apply.
Plan your payback. If you carry any balance into the next billing cycle, there’s no grace period on purchases you make during that cycle. Your card company will start charging interest the moment you make a purchase. Some card companies require you to pay your balance in full for two straight months to get your grace period back.
If you have carried a balance, you might get hit with something referred to as “trailing interest” or “residual interest.” Those terms refer to interest that accrues on your balance before you have a chance to pay it off, even if you’re paying the full balance that’s shown on your statement. The trailing or residual interest might have accrued between the time your statement was printed and the time your received it in the mail.
David Leach, principal examiner at Maine’s Bureau of Consumer Credit Protection, has some realistic advice about holiday shopping. He suggests a cooling-off period when considering major purchases.
“Your friends and family don’t want you to incur excessive debt to buy them presents,” Leach said recently.
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer 04412, visit https://necontact.wordpress.com or email firstname.lastname@example.org.