GREENPATH CLIENT NEWSLETTER
November 2009

Avoiding a Credit Card Hangover This Holiday Season

The National Retail Federation (NRF) recently released its 2009 holiday forecast, projecting holiday retail industry sales Credit cards to decline one percent this year to $437.6 billion. While this number falls significantly below the ten-year average of 3.39 percent holiday season growth, the decline is not expected to be as dramatic as last year’s 3.4 percent drop in holiday retail sales nor as severe as the 3.0 percent decline in annual retail industry sales expected for all of 2009.

“As the global economy continues to recover from the worst economic crisis most retailers have ever seen, Americans will focus primarily on practical gifts and shop on a budget this holiday season,” said NRF Chief Economist Rosalind Wells.

GreenPath echoes the importance of shopping on a budget this holiday season. “We encourage our clients to carefully budget their holiday spending this year and every year,” said Candy Wright, group manager, GreenPath Debt Solutions. “While credit cards can be very tempting to purchase gifts, they can result in a “holiday hangover” in January, when the credit card bills come due,” she continued.

“While credit cards can be very tempting to purchase gifts, they can result in a “holiday hangover” in January, when the credit card bills come due,” she continued.

Though some hopeful signs of a recovery have begun to emerge, like better-than-expected sales in August and momentum in the stock market, continued consumer uncertainty over job security and housing values will take a toll on spending this holiday season. And, as retailers become even more promotional, certain popular holiday categories like apparel and electronics may experience deflation due to aggressive sales.

“The expectation of another challenging holiday season does not come as news to retailers, who have been experiencing a pullback in consumer spending for over a year,” said NRF President and CEO Tracy Mullin. “To compensate, retailers’ focus on the holiday season has been razor-sharp with companies cutting back as much as possible on operating costs in order to pass along aggressive savings and promotions to customers.”

During the upcoming holiday season, GreenPath reminds people to consider the following:

Before using credit

Plan for purchases in advance. Do you want to commit future income to monthly credit payments?
Is the item you are considering purchasing with credit a need or a luxury?
Learn to say no and mean it. Remember, we cannot have everything that we want.
Understanding your own weaknesses when it comes to money.
If you know credit card purchases are tempting, then don’t carry the cards with you (but keep them in a safe place).
If you know you have a tendency to over-spend at the grocery store because you have over-draft protection on your checking account, make a list to shop from, and withdraw cash from the bank. Leave your checkbook at home.
Work toward the goals you have set. Does the credit purchase fit into your overall plan?
Weigh the pro’s and con’s of the purchase. Did you observe the “two-day rule?” (The two day rule: When you see something you really want to buy on credit, go home and think about it for two days. If you decide after two days that it is still a smart buy, and it fits into your budget, then go back and buy it.)

Shop around

Look at various sources.

Read and understand the contract

Read the contract carefully.
Don’t rush into signing anything.
Once a contract is signed, get a copy of it.
Know the penalties for missed payments.

Know your cost

Figure out total price when paying with credit.
Make the largest payments possible.
Buy on installment credit only after you have evaluated all other possibilities.
Don’t be misled into thinking small payments will be easy.

By observing these suggestions and planning ahead, we can kick off the New Year without a “holiday hangover.”

Building credit step-by-step

At some point in your life, you may experience the need to establish or re-build your credit. To make what may seem like a daunting task easier, there are some do’s and don’ts provided by the National Foundation for Credit Counseling (NFCC) that consumers should follow that will make the road to credit much smoother.

“Even though it is possible to live on a cash basis, most will need a thick and positive credit file to purchase big-ticket items such as a house or a vehicle,” said Gail Cunningham, spokesperson for the NFCC. “Whether building a credit history from scratch, or trying to improve a tarnished one, it’s important that consumers recognize the impact that a positive credit file can have on their financial well-being.”

The NFCC suggests that consumers consider the following tips when applying for credit:

Do obtain a free copy of your credit report from www.annualcreditreport.com. This is particularly useful if you are trying to rebuild your credit.

Do open checking and savings accounts. Even though this activity is usually not reported to the credit bureaus, lenders may inquire about the presence of such accounts on credit applications.

Don’t apply for too much credit at once. This can appear as though you’re desperate for credit and perhaps make lenders less inclined to extend credit to you.

Do apply for a variety of credit types. Credit scoring models value having different types of credit. Therefore, having some revolving accounts (typically credit cards) and some installment fixed payment loans (such as a car payment) can improve your score.

Do research the type of card that is right for you. Each issuer has different lending standards (yes, a credit card is a loan), so you’ll only want to apply for cards from those whose lending profile you fit. Familiarize yourself with the various standards by going to www.CreditCards.com or www.Bankrate.com.

For an extended list of other do’s and don’ts related to building credit, visit the NFCC website story at Tips on Rebuilding Credit.

Help your child manage credit

Money Magazine recently reported that new legislation taking effect in February prohibits banks from issuing cards to those under 21 unless they have an adult co-signer or proof of means to cover payments. But, before you put your signature and credit rating on the line, try this three-step approach.

Step 1: Start with Debit
When you help your child open a checking account, ideally by age 16, ask for a debit card connected to the account. They will get the hang of using plastic but can spend only up to the account balance (or risk an overdraft).

Step 2: Share Your Card
Once your child has proved they can use a debit card responsibly -- and is a high school senior or older -- add them as an authorized user to one of your credit cards. Your teen will get a card with their name on it, and the account will appear on their credit report.

Step 3: Go In Together
Only after your young adult has used your card responsibly for two years, you might consider co-signing on a card in their name. As co-signer you are still on the hook -- in terms of your wallet and credit score -- for any card payments the child doesn't make. So emphasize the importance of paying on time and in full.

To learn more, click on: Help Your Child Manage Credit