When holiday bills start rolling in this January, many individuals will find a new and ominous meaning for the expression: “The party’s over.”
Credit card spending, bolstered by increased consumer confidence and wider acceptance of plastic at non-traditional outlets such as supermarkets and fast-food joints, posted double-digit gains this year, experts maintain. While that would normally be enough to give some consumers a credit hang-over, the woes of the overextended are likely to be exacerbated this year because interest rates have popped up.
And where these rate increases hit other types of consumer loans in mid-1994, the bulk of the credit card rate hikes will hit in January 1995-just as the holiday bills come due, says Robert McKinley, publisher of CardTrak, a credit card newsletter.
That’s simply because credit card rates don’t adjust as quickly as rates charged on other types of consumer loans, McKinley says. Moreover, the credit card market was uncharacteristically competitive in 1994, which forced some issuers to hold the line on rates longer than they normally would.
What do you do if holiday overspending put you in a New Year’s crunch? Here are some tips.
– Take a picture. The first step to handling a credit hangover is determining just how bad it is, says Becky Cutler, a credit consultant who wrote Citibank’s “Coping with a Credit Crisis.” Get out a notebook and jot down your expenses in three categories: Fixed expenditures, such as mortgage or rent payments, utilities and insurance; variable expenses, such as food, clothing and entertainment; and expenditures for short-term credit, including credit card debts and car payments. Compare the amount you’re paying out for necessities to your after-tax income.
– Trim, don’t slash. If you’re like many people, you spend almost every dime you earn on bills and daily living. Without making cuts, there’s little left to whittle down the holiday bills. But don’t be overzealous. People who vow to cut too drastically rarely follow through, Cutler says. Resolve to simply trim, instead.
Take a look at how and where you’re spending and see how much you’d save by cutting out small, unnecessary luxuries-the $2.50-a-morning cappuccino; the $1 and $2 pops into the office vending machine; the $5 to $10 per day spent on lunches out, she suggests. Most people can save upward of $100 a month by simply skipping high-priced snacks and brown-bagging it a few days a week, adds Judy Lawrence, an Albuquerque, N.M., budget counselor and author of “The Budget Kit.” One client of Lawrence’s discovered she was spending $60 a month on vending machines alone.
– Involve the kids. Discuss the credit situation with spouses and children and make sure everybody knows that you’re trying to cut back. There’s no need to alarm-just set goals and explain why you need to cut.
– Prioritize your debts. After trimming your expenditures, you ought to have a tidy sum to start paying against your debts. Many people are tempted to use the money to pay off their biggest loans. But, a smarter tack is to pay off the highest-cost debts-such as those 18 and 19 percent credit card balances, says Ruth Susswein, executive director of Bankcard Holders of America in Salem, Va.
– Put away the plastic. A good way to cut back is to simply put the credit cards away for a few months. Cutler suggests stashing them in a safe deposit box, because that takes your cards out of reach when you’re most vulnerable to binge spending-nights and weekends.
– Stop shopping. If you’re a man or woman of little willpower, walking into a mall after Christmas is like walking into a minefield. Banners trumpet post-holiday sales from virtually every store window. Exchanging a $10 item can easily turn into a $100 spree, Cutler says. If you can, don’t go. If you must go, bring a friend who will collar you before you spend again.
– Consider debt-swapping. If you have good credit and high-cost credit card debts, you may be able to refinance your loans. Numerous credit card companies promise single-digit “teaser” rates. And people with homes and home equity can often refinance into home equity loans. While you always must be careful to check the terms and fees, those who swap wisely can often save hundreds of dollars. If you use the savings to pay down your debts faster, you reap a double benefit.
