Experts caution consumers to pay credit cards on time
CITYWIDE — ’Tis the season to stay out of debt.
As the holiday shopping season officially kicks off today, so does the season in which millions of consumers across the country tend to accumulate debt.
Americans will spend approximately $457.5 billion on holiday gifts this year,an increase of 5 percent from last year, according to the National Retail Federation. Approximately 30 percent of those shoppers will rely on their credit cards, where the debt is likely to take hold.
Shopping debt is common around the holidays for a variety of reasons, but most commonly because living with high debt has become an acceptable social norm, according to representatives at LendingTree LLC.
Parental guilt is also a major culprit, with many families feeling the need to purchase expensive gifts for their children who want to dress to impress, said Nigel Taylor of Taylor & Associates, a financial planning and asset protection firm on Third Street. “(One reason is) peer pressure, where children just won’t be happy with anything less than A&F (Abercrombie & Fitch) jeans or the latest Nike shoes, fearing they’ll be ostracized forever,” Taylor said on Tuesday.
Other causes behind reckless spending are the desire to impress distant relatives with expensive gifts, and stuffing stockings with “marginally useful items,”Taylor added.
Codie Dicus, 15, of Culver City, believes many consumers face holiday debt because they spend to get more in return from family and friends.
Shopping with her friend, Brooke Cary, 15, of Westchester, at Third Street Promenade on Wednesday, Dicus said in the past she’s had the feeling that she overspent for the holidays, though she’s never been in debt since she charges most of her purchases on her debit card or her parent’s credit card. Dicus said she does not outline a financial plan before the holidays, and makes purchasing decisions based on whether the recipient will enjoy the gift.
But if Dicus sees two equally good gifts, she will most likely choose the less expensive option.
Cary, meanwhile, said she feels obligated to buy gifts for friends to avoid leaving someone out.
“My friends will get mad if I buy a gift for someone and not the other,” she said on Wednesday.
Staying debt-free during the holidays isn’t easy, but it is possible, said Allison Vail, senior public relations manager for LendingTree LLC.
The common sense way to stay out of debt is to budget and not to overspend. The way to prevent overspending is to avoid using a credit card, Vail said.
“Don’t try to keep up with others,” Vail said. “If you have friends that give nice gifts every Christmas, set up the birthday rule where you only give gifts to one another for your birthday.”
Vail also suggests home-made gifts like cards with family photos and food baskets made from favorite recipes.
Create a financial plan, Taylor suggests, that takes into account income after taxes and deductions, monthly expenses, and Christmas-related expenses such as travel, decorations, postage and party food and drinks.
“If your credit cards are the evil uncontrollable demons, not you, get a plastic dish, fill it with water, drop your credit and debit cards in and place in the freezer,” Taylor instructs. “This gives you 24 hours to think things over since microwaving the dish will ruin the cards.”
Financial planning is the practice of choice for Sara Kang, 26, of La Cañada, who outlines her purchases a month before she heads to the stores.
Kang is never surprised to see her holiday gift expenses when she receives her credit card bill in January. However, she is surprised to see her expenses for holiday dining with friends.
“Me and my friends go to dinner more than exchange gifts,” Kang said on Wednesday afternoon, as she sat outside Santa Monica Place.
The holidays were more difficult to manage financially, said Kang, when she was working in a corporate atmosphere and felt obligated to purchase gifts for all of her colleagues.
If holiday debt is inevitable, Taylor advises against ignoring credit card bills and making late payments because of the high late-fees that credit card companies charge. At the very least, make the minimum payment. Check to see which credit cards have higher interest rates and pay those off first, he said.
It is important to be mindful of credit card interest rates, according to Vail. If a consumer pays $50 a month for a $500 bill at 20 percent interest a month, it will take that person 12 months to pay off the bill, she calculated.
“Just in time to do it all over again.” she said.
Originally published in the Santa Monica Daily Press print edition on November 24, 2006. Read the original PDF.