I work with many couples and ex-couples whose budgets and relationships are severely stressed as a result of buying things they could not afford. Sometimes money problems are the primary cause of a divorce. This time of year is filled with temptations to spend too much. Below are some warnings from Framme Law Firm, PC.
The holiday season, from Thanksgiving through New Year’s Day, is filled with splashy sales and introductory credit offers that lead many Americans to rack up debt and damage their credit scores. Avoiding these common holiday credit traps will help you stick to your budget and maintain your financial health.
- Beware of store credit accounts. Nearly every major retailer offers store credit cards at the cash register. Many stores use discounts on a first purchase to lure shoppers. Beware; retail credit accounts often have higher interest rates than standard credit cards.
- Closely examine “Introductory Interest Rates.” A “Low Introductory Interest Rate” is a great come-on for credit card companies. These rates are temporary and may increase drastically in a short period of time, locking you into exorbitant payments that can bury you financially.
- Think twice before accepting a cash advance. Cash advances may be tempting when funds are low, especially while traveling, but the fees and interest rates on cash advances are typically much higher than standard credit.
- Do not open too many new accounts in the same period. Opening a new line of credit generates a hard inquiry on your credit score. Too many hard inquires will lower your score. Avoid applying for multiple new accounts around the holidays.
- Do not exceed your credit limit. It may be tempting to throw caution to the wind and max out your credit card around the holidays, but reaching or exceeding your credit limit will have negative consequences, including higher interest rates, fees and a lower credit score.
- Beware of reward points systems. Creditors use reward points to entice you to spend more. What you gain in points will not equal the additional interest you will pay out over time.
- Avoid late payments on your accounts. Know when your payments are due and the penalty fees or rate hikes for late payment. Penalties may be large, cumulative and disastrous for you.
- Read the fine print. Understand the terms in your cardholder agreement. When you accept the credit card you are bound by the cardholder agreement regardless of its length, print size or whether you read it. Take the time to read the cardholder agreement and understand all the obligations and penalties you are subject to BEFORE you accept the credit card.
That’s the end of the cautions from Framme Law Firm.
Now, some recommendations from my parents that have served me well:
Never borrow money for anything but a house, worthwhile education, or, if really necessary, an affordable car. If you use a credit card for convenience, pay the bill in full every month. That is the safest and smartest way to handle money.
Expensive gifts are not necessary. If you are tempted to buy more than you can afford for your kids, remember that the way you handle money — sensibly or recklessly — is the way you are teaching them to handle money. Many kids would enjoy free or low-budget activities with you as much as they would enjoy having the toys or clothes you might buy for them.
Best wishes to all for a happy holiday season that does not damage your budget or your credit score!
The author, Virginia L Colin, Ph.D. is a Professional Family Mediator certified by the Virginia Supreme Court. She is not an attorney or a trained financial advisor.
