Oh I know The holidays? Who is thinking about the May holidays? The answer may not be you, but you should be. Here’s why: the so-called Christmas hangover.
What is the Christmas hangover? It’s the pain millions of Americans still feel as they receive their credit card statements each month. And when do they spend the most? You guessed it: the holidays. And they spend even more when they collect their gifts instead of paying cash, getting caught up in the holiday spirit. It is a habit that you definitely want to avoid. And with 116 million economic stimulus checks en route or already issued, nipping a Christmas hangover in the bud has never been easier.
According to public policy firm Demos, more than $ 2.2 trillion in US credit cards were placed in purchases and cash advances last year. The companies handling those transactions collected $ 18.1 billion in late fees from their customers (RK Hammer). And that was before the current credit crisis. Today, credit card default has increased by 30%, the highest rate since 1992. However, since these large financial services companies do not intend to take it, they have made the decision to increase their rates.
The headline of a recent ‘USA Today’ article was “Credit Card Rates Rising Rapidly.” [http://www.usatoday.com/money/perfi/credit/2008-04-27-credit-card-fees_N.htm] According to the article, Washington Mutual told its clients that it was increasing its rates by as much as 100%. Discover is raising its penalty rate to 31%. Bank of America has tripled its rates for some of its clients. Who is suffering? Many times they are people who not only pay on time, but who have not had changes in their credit history.
Just think. You will put a couple thousand dollars in your plastic next December for gifts for family and friends. So, you get stuck and can only make the minimum monthly payment. How long will it take to pay that? Approximately 15 years.
Now, take that economic stimulus check and put it to work for you for the next six months, while adding a little each month and there will be no credit card bills next January. No vacation hangover. I do not regret. Just one chance, and for many the first time in history, to fully enjoy the vacation while creating memories, not reminders in the form of bills.
So again, are you saving for the holidays? Reversing the “buy now, pay later” credit card mentality should be your first step, and you can start with your stimulus check, because the idea of saving before you buy makes more sense than ever. That old saying “Christmas comes once a year” should not include a stipulation that you will pay for it for the next eleven months or worse, longer.