November 12th, 2009
Credit Card Debt Jumps Up In October
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The average credit card debt across the U.S jumped a near $1,000 in the month of October, according to Credit Karma. A $1,000 debt increase in a single month for every American with a credit card is a scary number, especially when credit is still tight, jobs are scarce, and with Christmas shopping madness just around the corner.
Credit card debt is not a new problem — consumers have always had to navigate the perils of owning a credit card, from the hiked-up fees, the hits to their credit score, and the temptation to overspend on credit. The sudden increase from September to October could be a tell-tale sign of deepening consumer debts going into the holiday spending season, which means consumers need to tighten up credit usage or pay down debt if we hope to survive financially going into the new year.
Some spenders have the right idea to sidestep credit card usage altogether. A recent Credit Karma poll shows that 79% of CK users plan to use cash to pay expenses for the holidays, versus 18% who will be charging it all on credit cards (2% will pay with pre-paid card, 1% are spending gift cards). Interestingly enough, the users who plan to charge on credit cards have an average credit score of 740, while the majority cash spenders had an average score of 654. Even if you have a high credit score now, be weary about overspending these next few weeks if you opt to charge credit this season. But if you don’t want to dig deeper into debt and want to protect your credit score as you shop this season, tuck your credit card to the back drawer and consider these two old-school shopping tricks that are making a comeback:
- Layaway – Layaway programs have gone out of style since credit cards took over as the norm, but they are being offered again from the usual places like Sears and Kmart to new layaway offer from Toys R Us and online at eLayaway.com. Layaway programs allows you to put the item you want on hold, pay a fee plus a deposit of 10-20% of purchase price, and then make regular payments over a period of time until you finish paying it off and take the item home. This old-school shopping tactic appeals to people who don’t want to take to tack on more to their credit card balance and risk debt, but still want to buy something they can’t pay in full right away. Just be careful of cancellation fees and read and understand the terms of the layaway plan, and watch out for any price drops because you aren’t usually guaranteed any sales that happen after you put something on layaway.
- Re-gifting – is it really a question of ethic in the shopping world? More along the lines of socially acceptable or not, then you can talk about its financial benefits. It’s a taboo in the shopping world—to regift or not to regift? In an ideal world, it’s a perfect option: it is no cost to your credit card, your unwanted gift doesn’t go to waste, and it’s a sustainable form of shopping without the price of debt. You can decide whether or not its socially acceptable, but there is no doubt that it has many financial benefits. If you’re thinking about recycling some presents from last year, follow these pointers to avoid a re-gifting faux pas: the item should not be used and look new and in proper giving condition; you didn’t like it, so make sure you that you are re-gifting to the right person and they will like it; wrap it up presentably; make sure you don’t give the gift back to the original giver; and most importantly, make sure you can get away with it.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!