YOUR MONEY: Beware credit card changes as you charge into holiday shoppingThis year, I'm taking out my bullhorn. Running up your credit card bills could be extra costly this year as card issuers scramble to change many terms before federal rules restricting their practices take effect in February.
By: Pamela Yip, The Dallas Morning News
DALLAS — This year, I'm taking out my bullhorn.
Running up your credit card bills could be extra costly this year as card issuers scramble to change many terms before federal rules restricting their practices take effect in February.
They're raising annual percentage rates, instituting fees, slashing credit limits and even closing some accounts, all of which could put consumers who carry large balances in a bind.
Consumers "need to really think twice about how they're paying for the holidays this year," said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas. "If you're planning on carrying a balance and you're going to charge up a bunch of things during the holidays, today's (credit card) terms may not be tomorrow's terms."
Translation: The purchases you make now and in December could have a higher annual percentage rate in January.
The good news is that many consumers plan to pay for their purchases with cash or debit cards and avoid credit cards.
"I think we may have a new normal with Christmas spending this year," said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "People have finally realized it isn't the other guy this is happening to — the economic downturn. No one is immune from a job loss. The lack of savings is scary, and people know that they can be next."
If you do use a credit card, don't charge anything that you can't pay off in three months.
"Credit card rates are now too high to just charge something and assume you will be able to pay for it," said Bill Hardekopf, chief executive of LowCards.com, a credit card information Web site.
Don't even think about just making the minimum payment.
"If you charge $1,000 on a credit card with an interest rate of 15 percent and just pay $25 of your balance each month, it will take you until May of 2014 to pay off this Christmas, and you will pay an additional $370 in interest," Hardekopf said.
"If your APR was recently increased and you carry a balance, leave that card at home so you won't charge anything more on it."
To protect yourself from having to use credit cards, develop a spending plan before you venture out to the mall. This isn't as restrictive as you might think. In fact, it can be quite liberating because it will keep you from making impulse purchases.
Mark suggests making a list of the people you're buying for, how much you're spending on them and what you want to purchase.
"Every aisle is going to be filled with impulse purchases, so you don't want to fall prey to that," he said. "It's usually the minor expenses that ruin our budgets, so creating a list for each and every item will help keep your budget in line."
Pay in cash or through a debit card. But if you use a debit card, keep track of your spending and your bank balance so you don't overdraw your account.
"It's really hard to outspend the cash you have," Mark said. "You can't have $600 and end up spending $1,000."
Studies have shown that consumers typically spend 12 percent to 18 percent less when they pay with cash, Hardekopf said.
"Counting out and handing over cash is a sobering reminder of how much items really cost," he said. "It makes you pause and consider if the purchase is really worth your labor."
Retailers are going into this holiday season with leaner inventories than last year because they don't want to be forced to give huge discounts to move the goods.
That means door-buster deals may be more limited this year.
"If there's something that's a must-have, get up early," Mark said.
Take advantage of coupons and promotion codes from retailers.
Finally, remember that you don't have to spend money to give to others.
"If you're thinking, 'I don't have enough cash or credit,' remember that money does not equal love at the holidays, and you can supplement that with gifts of time and love," Mark said.
That's what Cynthia Nevels is doing.
"This year, I'm going to do more service as gifts," said Nevels, executive director of Jr. Finance Literacy Academy in Grand Prairie, which teaches money management skills to young people. "I'm going to cook dinner for friends and family. I'm going to offer to clean someone's home — use my time vs. my cash."
That's one surefire way to keep the credit card bills under control.
SHOP WITH SELF-RESTRAINT
To keep your finances under control this holiday season, follow these tips:
—Create a detailed budget.
—Don't wait until the last minute to shop; many retailers already are offering great deals.
—Use credit cards prudently. Don't charge anything that you can't pay off in three months.
—Make your gift instead of buying it. It will hold special significance for the recipient.
—Give of yourself. Consider doing a chore for a friend or offer to baby-sit. Do things that don't require money but still convey the spirit of giving.
SOURCE: Consumer Credit Counseling Service of Greater Dallas