According to the National Foundation for Credit Counseling (NFCC) October online poll, the overwhelming majority of consumers intend to pay for their holiday expenses with cash or a debit card. Seventy percent of more than 4,800 respondents chose this option over charging the expense or utilizing a lay-away plan.
Consumers are definitely shifting toward using debit cards, perhaps as a tool to control spending, or because they have limited or no access to credit. Regardless of the reason, it will definitely be a nice gift to begin 2011 with no holiday debt.
Every financial decision should be an educated one. The NFCC suggests that consumers consider the following choices, the same that were given to the poll respondents, when determining how to pay for their own holiday expenses.
- Paying with cash or using a debit card for purchases – This is a smart choice for many. However, consumers need to be aware that purchases charged to a credit card come with certain protections that aren’t available when using a debit card. For instance, according to the Federal Credit Billing Act, you can contest a credit card charge for a product you purchased, but never arrived. Of course you’ll need to notify the merchant and the issuer of the problem, and take reasonable steps to prove your claim, but the law is on your side. If you paid with a debit card and have a problem, you may ultimately get your money back, but it will be much more trouble and take longer than if a credit card had been used. Tip: Some credit cards provide protections, too. Before hitting the malls this holiday season, consumers would be well-served to call their credit card issuer and inquire about the protections that come with their card.
- Charging purchases and paying the bill in full when it arrives – This is one of the best financial moves a consumer can make. You get to buy now and pay later, build a positive credit history which results in a high credit score, and never pay a cent of interest. You can take advantage of sale items, don’t have to carry large amounts of cash, and have all the conveniences of using credit. Tip: Keep track of your spending during the holidays so that -more- you can pay the bill when it arrives. Do this by recording all charges into your check register just as though you were paying for them on the spot. That way you won’t be spending money you don’t actually have.
- Charging purchases and paying for them over time – Consumers who do this are on a slippery financial slope. As well-meaning as a person may be, spending can get out of hand, particularly during the holidays. As a matter of fact, many are still paying for holiday 2009 purchases when they begin charging 2010 items. Adding new debt to old is never smart, and with double-digit interest rates, debt can become unmanageable seemingly overnight. Tip: Commit to controlling your spending during the holidays, and find someone to hold you accountable to that commitment. You owe it to yourself and your family to set the example of responsible financial behavior.
- Utilizing layaway programs – Everything old is new again, as layaway programs are now back and gaining in popularity. Layaway plans allow consumers to make purchases by putting down a deposit which may represent a percentage of the purchase price, and then making installment payments over a period of time until the item is paid for in full. It is not until that time that the consumer takes possession of the item. Layaway is a great tool, particularly for those without access to credit. Tip: Consumers should fully understand the terms of the layaway plan before signing up for it, as there may be a cancellation or restocking fee assessed if payments are missed or if you change your mind about the purchase. Also inquire if you can take advantage of a sale if the item you put in layaway is offered for a cheaper price after you’re already in the program.
It is encouraging to see that the fewest number of respondents, only nine percent, intend to charge their purchases and pay for them over time. This signals that consumers more fully understand the potential negative consequences resulting from this decision, and are opting for smarter ways to pay for their holiday expenses.
The actual October NFCC online survey questions and results are as follows:
I intend to pay for my holiday spending by:
A. Paying cash or using a debit card for my purchases = 70%
B. Charging my purchases, and paying the bill in full when it arrives = 10%
C. Charging my purchases, and paying for them over time = 9%
D. Utilizing layaway programs = 11%
Note: The NFCC’s October Financial Literacy Opinion Index was conducted via the homepage of the NFCC Web site (www.DebtAdvice.org) from October 1-31, 2010 and answered by 4,814 individuals.