Time To Budget for Holidays and Higher Credit Card Bills
(Originally published December 2005)
The Christmas shopping season is here and it is the time for consumers to make their holiday budget. Rising interest rates, changes in credit card terms, and higher gas and heating costs may leave little money for a generous Christmas.
"Now is the time to think about the credit card bill that will arrive in January. Not only have interest rates increased again, but many credit cards are doubling the minimum payments. If households do not plan ahead, they may start the new year with big financial problems," says Bill Hardekopf, CEO of LowCards.com. "Before you start holiday shopping, look at all of the bills that will be due, including a larger credit card bill and larger utility bills. The next few months could be tight, even for households that don't live paycheck to paycheck."
Increasing interest rates are creating higher payments for the 45% of households that carry a credit card balance. Last year, the average variable rate was approximately 12.83%. After a year of steady increases, it is currently 14.9%. "If you carry an $8,000 balance, you are paying an additional $166 per year for just interest payments. The interest payments will increase with additional rate hikes in 2006," says Hardekopf. "With each credit card purchase, ask yourself if the item is worth paying an additional 15% in interest and paying interest on it for years."
However, it is the increase in the minimum payment that may catch consumers by surprise. Most cardholders who carry a balance will pay twice as much toward their minimum payment than they did last Christmas. At the encouragement of the Office of Comptroller of the Currency, credit card providers are increasing their monthly minimum from 2% to 4%. This has already taken place with about 40% of the cards, but will occur with most of the remaining cards by the end of the year. The interest savings will be significant for cardholders. Paying a 2% minimum payment on an $8,000 balance ($160 per month) will take 448 months to pay off and cost an additional $12,789 in interest. Paying a 4% minimum payment on an $8,000 balance ($320 per month) will take 155 months to pay off and cost an additional $3,574 in interest.
"Obviously, raising the minimum payment is a good idea to help cardholders pay off debt and save on interest payments. Consumers just need to plan and adjust their budgets for higher payments. A good place to start is to control Christmas spending to what you can afford to pay for now," says Hardekopf. "The National Retailer Association projects that the average consumer will spend $850 this holiday season. If you put your spending on credit cards, use that number as an estimate and start saving now to pay off your cards by January or February."
LowCards.com ( http://www.lowcards.com ) is a website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards/rebates, and lowest intro rates. It also gives and unbiased ranking and review for each card. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for over five years.
For more information, contact Bill Hardekopf at 1-800-388-1910 or billh@LowCards.com.
The Christmas shopping season is here and it is the time for consumers to make their holiday budget. Rising interest rates, changes in credit card terms, and higher gas and heating costs may leave little money for a generous Christmas.
"Now is the time to think about the credit card bill that will arrive in January. Not only have interest rates increased again, but many credit cards are doubling the minimum payments. If households do not plan ahead, they may start the new year with big financial problems," says Bill Hardekopf, CEO of LowCards.com. "Before you start holiday shopping, look at all of the bills that will be due, including a larger credit card bill and larger utility bills. The next few months could be tight, even for households that don't live paycheck to paycheck."
Increasing interest rates are creating higher payments for the 45% of households that carry a credit card balance. Last year, the average variable rate was approximately 12.83%. After a year of steady increases, it is currently 14.9%. "If you carry an $8,000 balance, you are paying an additional $166 per year for just interest payments. The interest payments will increase with additional rate hikes in 2006," says Hardekopf. "With each credit card purchase, ask yourself if the item is worth paying an additional 15% in interest and paying interest on it for years."
However, it is the increase in the minimum payment that may catch consumers by surprise. Most cardholders who carry a balance will pay twice as much toward their minimum payment than they did last Christmas. At the encouragement of the Office of Comptroller of the Currency, credit card providers are increasing their monthly minimum from 2% to 4%. This has already taken place with about 40% of the cards, but will occur with most of the remaining cards by the end of the year. The interest savings will be significant for cardholders. Paying a 2% minimum payment on an $8,000 balance ($160 per month) will take 448 months to pay off and cost an additional $12,789 in interest. Paying a 4% minimum payment on an $8,000 balance ($320 per month) will take 155 months to pay off and cost an additional $3,574 in interest.
"Obviously, raising the minimum payment is a good idea to help cardholders pay off debt and save on interest payments. Consumers just need to plan and adjust their budgets for higher payments. A good place to start is to control Christmas spending to what you can afford to pay for now," says Hardekopf. "The National Retailer Association projects that the average consumer will spend $850 this holiday season. If you put your spending on credit cards, use that number as an estimate and start saving now to pay off your cards by January or February."
LowCards.com ( http://www.lowcards.com ) is a website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards/rebates, and lowest intro rates. It also gives and unbiased ranking and review for each card. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for over five years.
For more information, contact Bill Hardekopf at 1-800-388-1910 or billh@LowCards.com.
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