Don't Let
The Holidays Detour You From Your Financial Goals
by James H. Dimmitt
Do you dread going to your mailbox and finding yet another
credit card bill? Do you find yourself worrying about how you'll pay your bills
from one month to the next ?
Guess what ? You're not alone. Almost half the households in
America report having difficulty paying their minimum monthly payments on credit
card bills and other debts.
We have become a nation hooked on credit. Recent government
statistics on American debt show that:
~ Over 40% of US families spend more than they earn.
~ The typical U.S. household has an average credit-card balance
of $8,940.
~ Credit card debt is up 36% from just 5 years ago.
~ 92% of U.S. family disposable income is spent on paying debts,
up from 65% in 1975.
How did we get ourselves in such a mess ?
According to Dayana Yochim, a journalist and teacher for The Motley Fool, "It's
not just that we're borrowing more money and paying it back more slowly; it's
that we're spending money we used to consider off- limits."
Yochim points to the popularity of home equity loans and lines
of credit as just one example. "Home equity loans are more popular than ever as
people borrow against their home to feed their spending binge."
According to a BusinessWeek report, total household debt topped
100% of disposable annual income last year for the first time ever.
"The problem with credit for many people is that it's just too
easy to get into a rut with bad spending habits," says Rich Vorland of Consumer
Credit Counseling. "Credit gives everyone the instant gratification of getting
something they want right now. We don't have to save up for it. We don't have
think of how we'll pay for it until the bill arrives."
And therein lies the problem for many holiday shoppers. Too
often we pull out the plastic without thinking of how we'll actually pay for the
things we buy. How many of us are still paying off credit card debt from last
year's holidays? Adding additional debt will only keep you buried in debt for
many more years.
For example, let's say you have a credit card debt of $2500 with
an APR of 18%. If you only pay the minimum amount due it will take you 20 YEARS
to pay off your balance, assuming of course you don't make any other credit
purchases. On top of that you will have paid your credit card company a whopping
$3,365.51 in interest!
If you've been working to eliminate or pay down credit card
debt, don't let the holidays detour you from that goal. Use only cash to pay for
the presents you plan to buy. If you must use a credit card, set a goal to pay
off that debt within one to two months. Otherwise you'll be right back where you
started from or even worse - further and further in debt.