When the Holiday Has More Red Than Green : Spending: The key to managing credit is knowing how much debt you can reasonably carry--and what to do if you get in over your head.
In the next few weeks, after the gifts have been opened, the tree taken down and party decorations packed away, some less cheery reminders of Christmas will linger as holiday bills arrive.
Free spenders may find themselves unable to handle their mounting debts. But financial experts warn that falling behind with payments can be expensive and jeopardize future borrowing plans.
“If it’s a rare occurrence, it probably won’t be a problem, but if a pattern develops, it’s likely to be reflected (negatively) on your credit report,” said Jonathan Pond, a Boston-based financial consultant.
Pond and other financial advisers recommend that people with financial hangovers first concentrate on getting household expenses paid in a timely manner, especially the mortgage or rent, before trying to wipe out credit card balances. These consumers must also avoid taking on new debt.
“If you’re playing this game, it’s also probably better to be delinquent on those loans that don’t report to the credit bureaus,” Pond said. Some utilities, for example, might not report to credit bureaus, although they could eventually suspend services.
“The key recommendation here is to make the minimum payment on credit card bills, even as repugnant as I hope that is to people,” he said. “That’s one of the flexibilities of credit cards. If you run short, you can make the minimum, but realize . . . you’re buying time at a great expense.”
It’s not known how many debtors will end up on this financial treadmill. About two-thirds of all cardholders do carry a balance each month, while 2.56% have delinquent accounts, the American Bankers Assn. said.
The general rule of thumb among banks and other creditors is that total indebtedness per household should not exceed 36% of take-home pay each month, according to Robert Fazzini, president of commercial lending at Busey Bank in Bloomington, Ill.
Fazzini said individuals who run into financial difficulties should contact their creditors immediately.
“Most bankers appreciate it if you’re going to be late with payments to call and tell them and explain why,” he said. “What we don’t like is not knowing.”
So, when is a payment treated as late? “Banks don’t usually consider a payment late until it’s a week behind,” Fazzini said.
Bankers say they make that determination based on when a check is received, not when the mailed payment is postmarked.
Fazzini said many banks are willing to overlook one late payment provided all others throughout the year were on time. Late customers are often contacted around two weeks following one missed payment; the credit reporting agencies that keep track of all individuals’ credit histories are contacted after 30 days, he said.
“Your credit report is like a little shadow that follows you. If it notes you were late in payments, that tells (future) creditors you were a reluctant payer, and thus, would be a bad credit risk,” said Beverly Tuttle, president of Consumer Credit Counseling Service of Connecticut.
