Making a wise credit decision this Christmas

07.DEC.07

Editor: As the Christmas season unfolds on us, most commercial businesses, including financial institutions, will be offering “special deals” as part of giving back to customers, locking in customers for the long-term or simply trying to take advantage of the season by maximize their sales.{{more}} We have seen advertisements from banks, credit unions and higher purchase providers offering low interest rates, no payment until February, no down payment etc.

The persuasive advertisement could make one become an impulsive shopper, and when the dust is settled after January you could end up with a financial crisis on hand. Credit has a price tag and it pays to shop around. Your shopping should not just be for best interest rates but must include information on credit cost (administrative cost), all hidden fees including late payment charges and all that is written in the fine print. Your focus should be on obtaining as much financial information as possible to ensure that you make the best financial decision.

The hidden fees in some cases are not designed to recoup costs but rather to maximize profitability by shifting the emphasis from interest to fees. In the past, fees and charges were the means by which a credit provider recouped the cost of establishing and administrating credit, while the return for providing the credit, or “profit” earned by the credit provider was viewed as being earned through interest. Today, the administrative cost, delinquent/late fees and early termination fees are areas for increased profitability. These fees or costs are normally not included in the advertisement or information provided to attract customers’ attention.

During this holiday season, avoid making decisions that will negatively affect your credit record. Avoid creating new debt that will place additional pressure on your already declining disposable income. Debt consolidation could help improve your debt servicing but avoid consolidation to create more debt.

Emphasis should be on repaying debt instead of moving it around. Look to credit providers with experienced customer service representatives/ loans officers who will provide critical information to help inform your decision. Remember at the end of the day, you are the one to repay the debt and your credit record should be of paramount importance.

Cerlian “Maff” Russell