Monday, December 14, 2009

8 ways to stay debt-free during the holidays

By Erica Sandberg

You've budgeted fanatically, spent judiciously, whittled down debt, and now the holidays are here. If you're holding credit cards with unused credit lines, this can be a dangerous time.

Stores are stocked with enticing items, the kids are clamoring for gifts and even your spouse is hinting at something special. A voice whispers to you, "Loosen up. It's the season for giving. The cards are right there in your wallet. Just use them!"8 ways to stay debt-free during the holidays

Hold up, Santa. Random charging is never a good idea, but in this economy, it's particularly foolish. Here's how you can hold the reins and ring in the New Year on a financially sound note.

  1. Set your limits. Even if you've already begun shopping, take stock of your remaining funds and determine a total and a per-person spending allotment. "I've capped gifts at $50 to each of my kids and my nephew," says Naomi Derner from Portland, Ore. She also conferred with friends. "I've asked them if we can limit the gift cost to $15 -- so token gifts or homemade only." Such communication takes the pressure to overdo out of the equation. Cutting back on nonfamily presents also works for Jeanne Sager, a consumer and family reporter from Callicoon Center, N.Y. "We've told people in advance there would be no gifts, and we don't expect anything in return. It sounds grinchy, but I've found a lot of people are relieved not to get another stupid candle!"
  1. Goal-ify your card. Sure, the holidays seem terribly important right now, but they'll be just a memory before you know it. Racking up high debt this month can impact what is really crucial -- your long-term objectives. Think about where you want to be financially by the end of 2010. Then, write those goals down on small Post-its and attach them to your credit cards. Each time you reach for the cards, the notes will serve as reminders of what you really want to do with your money.
  1. Stash the plastic. Before hitting the stores, you just may want to rid your wallet of credit cards entirely and take your debit card instead. This way, you can only spend up to the amount in your checking account and avoid the temptation to charge more. You won't be the only one adopting this technique: A survey conducted by the National Retail Federation found that one-fourth of this year's holiday shoppers said they'll be using only cash, and 43 percent will use debit cards.
  1. Shop with points. Have a credit card that has allowed you to earn points for travel and other goodies while you charge? If so, and you've accumulated a fair number, now may be the perfect time to cash them in. Most rewards programs provide cardholders with an amazing catalog of gift items. Browse through their offerings and shop for the holidays without dropping a dime of your "real" money.
  1. Lower the line. If your balance is zero, yet you have the ability to charge $10,000, spending a grand of that can seem pretty reasonable -- even if you can't pay it off until 2011. However, if your credit line is $1,000, charging the maximum doesn't feel quite as right. Though drastic, you can ensure you don't overdo it by asking your credit card company to reduce your credit limit. After all, you can't charge what you aren't allowed to charge without incurring expensive over-limit fees. There are some drawbacks to this method though: It could affect your credit score, and if you want that big line back, it may not be available.
  1. Plan with your partner. It's all well and good for you to keep charging in check, but is your partner doing the same? A new survey from Capital One Financial Corporation examining the financial habits of couples found that 55 percent of those surveyed have not yet discussed their holiday shopping budget with each other. Carve out time for a couple's discussion, says Shelley Solheim, Capital One's director of financial education. "Make sure you are on the same page with your partner about spending limitations," says Solheim. Setting goals together during this season can prevent added stress or disagreements -- and unnecessary liabilities.
  1. Prep your kids. If you tend to overshop because you don't want to disappoint your kids on the big day, hold a family meeting to discuss what the holidays really mean, as well as your financial boundaries. Bob Brooks, host of "The Prudent Money Show" radio program and author of "Deceptive Money," says parents often make wrong assumptions about what kids value. Younger children usually just like ripping open wrapping paper, so inexpensive gifts can suffice. For older kids wanting costly items, consider this a teaching moment. "Let them know what you have to spend, and ask them if they think it makes sense to get into debt for what they want," says Brooks, and give them the option of one big gift or several smaller ones.
  1. Stuff the stocking stuffers. Some of the sneakiest budget killers are the last minute, quick-pick-up items you buy on a whim or out of guilt. These include fillers for stockings and gifts for those who aren't on your list but who surprise you with a present. It's easy to get caught up in impulse shopping, so think hard about each purchase, however small. Little things add up quickly and can cause unplanned-for debt.

The calendar will soon turn to 2010, and December's bills will be in the mail. Project how you'll feel when they arrive: Will you be in a panic because the balances have ballooned, or relieved that you maintained a healthy relationship with your credit cards?

The mystery of multiple opt outs explained

Sometimes you have to opt out of a rate increase more than once

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I had a major bank credit card, the interest rate was increased but I opted out of the increase with 8.99 percent and my account was closed in 2007. I am continuing to pay off my credit card, but recently I noticed my rate increased from 8.99 to 12.24 percent. When I called about the increase, they said a notification was sent to me about the rate increase and I had not opted out again. So, my rate is increased. Is this legal? I thought it was the law that if you opt out you can pay off your balance with the current rate, but it seems even after you opt out, the rate can continue to increase and you have to do multiple opt outs during the entire pay off process. . -- Mohammed

Answer for the expert

Dear Mohammed,
It is difficult to answer your question regarding the legality of increasing the interest rate on an account where you have previously opted out of a rate increase without reviewing the original cardholder agreement. However, the large bank that issued you the card is likely to have a team of legal representation, so it is very unlikely they would proceed with an illegal action. In most cases, when you opt out of changes to your cardholder agreement, the account is "closed" and you can no longer make purchases with the card. Given that fact, many people would make the assumption that it would not be possible for the card issuer to make changes to a "closed" account.

I asked a consumer attorney, Richard M. Alderman, and his response was, "The account may not be really 'closed,' but is just inactive and no longer allows any future spending. Until it is paid in full it is still 'open.' If that is the case, the card issuer may still propose changes to the terms and the consumer would have to reject them."

Should you have access to your original cardholder agreement, you might want to take a look at it and see if you can determine what happens to your account once you have opted out to proposed changes to your agreement the first time. Even if you can find it, you may not be able to wade through the fine print and legal terminology to come to a definitive conclusion.

My recommendation is that you open and review all correspondence from your card issuer and continue to opt out of any proposed changes to your cardholder agreement. Be sure to send a certified letter stating you are opting out with a return receipt request.

This practice of requiring consumers to opt out multiple times to changes in a cardholder agreement is new. It is likely these actions are a direct result of the fact that the remainder of the provisions of the Credit Card Accountability and Responsibility Disclosure Act of 2009 (Credit CARD Act) go into effect in February 2010. The good news is that the Credit CARD Act will prevent card issuers from these types of actions moving forward. Specifically, your card issuer will no longer be allowed to raise your interest rate due to universal default and can only raise your rate for being 60 days late.

One other important provision of the Credit CARD Act will require card issuers to post their cardholder agreements on their Web sites, thus eliminating the guesswork in what is allowed and what is not. Then you won't have to search for a document years down the road; it will be available at the click of a mouse.

Take care of your credit!