The holiday shopping season provides an excellent opportunity to be generous to those you care about. Unfortunately, it also offers a chance to be irresponsible about credit card spending.
The average interest rate charge on bank credit cards is 18 percent this year, down from 18.9 percent a year ago. While that's an improvement, it's a feeble one when you consider that the Federal Reserve has pushed other interest rates to 29-year ++ lows. Worse yet, the average interest charge on department store credit cards remains stuck in an even loftier range of 22 percent to 24 percent.
Bank card rates are often variable, and even so-called "fixed" card rates can be adjusted by lenders with proper notice. So, looking beyond the already-high cost of credit, any increases in interest rates in the next several years could have a dramatic effect on the price of the credit balances you roll up this holiday season.
A credit card debt of $1,000 paid off in just the minimum required payments may take more than eight years to finish off. It's obviously impossible to accurately predict interest rates that far into the future.
Try to be in control of your credit this holiday season. Using willpower will benefit you long term. Come up with a basic budget for how much should be spent on gifts. At the end of each shopping trip, sit down and add up the sales slips to see if the budget was met. Keep only one or two credit cards in your wallet, except when making a planned purchase, thus lessening your temptation.
"Over the holidays, beware of banks' deferred payment plans, RTC also known as 'skip-a-month' payment plans, because the bank won't skip over interest for that month and you'll still be accruing interest over your entire balance," warns Mary Beth Butler, credit adviser with the non-profit Bankcard Holders of America, in Herndon, Va.
Similarly, many holiday credit programs offered by big retailers start accruing interest immediately even though payments aren't required for several months, Butler notes.
Even if interest charges don't begin immediately, if you don't have the money now to meet these demands, you probably won't a few months from now either.
"I advise that shoppers only use credit cards for holiday shopping if they can afford to pay off the balance at the end of the month," says Pat Hunter, director of the United Charities Consumer Credit Counseling Service in Chicago.
"Early signs of credit trouble include not knowing how much you owe and being afraid to sit down and figure it out; paying only minimum payments or being late with payments; stopping contributions to savings; and spending more than 20 percent of your take-home pay on debt payments."
Should you run into credit trouble, don't run from creditors. Talk it over with them, explaining that you plan to make good. You may need to seek counseling to help you work out a longer-term payment plan to meet debts. The National Foundation for Consumer Credit, of which Hunter's organization is a member, can be reached toll-free at (800) 388-CCCS (800-388-2227) to set up an appointment for a preliminary budget analysis.
Beyond using credit wisely, you should shop for the best credit card rates available. The lowest-rate nationally available bank cards, according to Bankcard Holders of America, currently are:
* Charles J. Givens Organization, Little Rock, Ark., (800) 284-4082, Visa and MasterCard, $37.50 annual fee, 25-day grace period for payment, 7.75 percent variable rate.
* Arkansas Federal Credit Card Service, Little Rock, Ark., (800) 477-3348, Visa and MasterCard, $35 annual fee, no grace period, 8 percent variable rate.
* Wachovia, Wilmington, Del., (800) 842-3262, Visa and MasterCard, $39 annual fee, 25-day grace period, 8.9 percent variable rate.
* Oak Brook Bank, Oak Brook, Ill., (800) 666-1011, MasterCard, $20 annual fee, 25-day grace period, 10.4 percent variable rate.
* People's Bank of Bridgeport, Bridgeport, Conn., (800) 426-1114, Visa and MasterCard, $25 annual fee, 25-day grace period, 11.5 percent fixed rate.
* Bank of Montana Systems, Great Falls, Mont., (800) 735-5536, Visa and MasterCard, $19 annual fee, 25-day grace period, 11.75 percent variable rate.
* Bank One Cleveland, Painesville, Ohio, (800) 395-0010, MasterCard, $20 annual fee, 25-day grace period, 11.8 percent variable rate.