William Penn Life, 2002 (37. évfolyam, 1-11. szám)
2002-12-01 / 11. szám
Moneywi$e Christmas Cards Tis the season for giving-to creditors-if you’re not careful with your credit cards THIS IS THE SEASON FOR GIVING. So when you are doing your Christmas shopping ask yourself how much do you want to give your credit card company or bank this year? We can all use credit cards better. But at times like Christmas and holidays impulsive spending can take over—particularly if you are looking to end a gloomy year on a happy note. Retailers will certainly be doing all they can to cheer you on and loosen the purse strings with special offers and intensive advertising. Economists love a confident consumer prepared to spend, spend, spend. So if you are looking for an excuse you can always argue you are lashing out in the national interest to keep us all out of a recession in 2003. But when it comes to conspicuous consumption are you doing it in a smart way? The answer lies in what type of credit card you take out of the wallet or purse when it comes to buying presents or perhaps getting a cash advance out of the ATM to keep the party going. In January there will be the annual stories about getting credit card debt under control because for every party Money Links For more information on choosing and using credit cards, log onto the website of the Federal Reserve Board at: O www.federalreserve.gov/pubs/ shop there is a potential hangover. Showing some spending restraint in December is the easiest way to avoid the January debt hangover. But if that is not a realistic option then at least understand how your credit card charges work. There are two basic credit cards: those that offer you interest-free days and those that don't. It depends on how you use the card as to which one is best for you. Cards with interestfree days suit people who pay off the balance in full each month. But they typically carry a higher interest rate (around 2%) on balances carried forward and they are not the card to use for cash advances. Take a look back at your last six credit card statements and check how often you paid the card's debt off in full by the due date. Let's assume your credit card has 25 interest free days. If you do not pay the debt in full the interest may be backdated to the original purchase. Perhaps you could not afford to pay it off completely and paid off $500 of a $1000 outstanding. Some cards—in the worst case scenario—will still charge you interest on the $1000. More importantly, if you carry over an outstanding balance, you do not get any interest-free days for next month. The interest rate meter starts ticking with every transaction. Interest-free day cards are particularly expensive if you are in the habit of taking out cash advances. Cash advances incur interest even if you have an interest-free day card. And, there are other traps when taking out cash advances. Assume you have a debt of $100 on the credit card which is still within the interest-free period. You take out a $20 cash advance and pay it back tomorrow. Your debt of $100 will be reduced to $80—but you will continue to be charged interest on your $20 advance until the entire debt has been paid off. Because interest-free cards are not the ideal product for people using cash advances it is surprising when you see reports showing that cash advances on free-day cards have been steadily climbing for the past three years. Millions of dollars in interest fees have been paid by consumers needlessly, just because they took cash advances out with the wrong style of credit card. For most people the key to cutting credit card costs lies in understanding their own spending habits and what happens when they take the plastic card out of the wallet. Alternatively, you can just leave the card in the wallet. 4 IVilliam Penn Lile, December 2002
