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By: Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Sunday, December 14, 2003
The merry season of joy is sneaking up on us again.
This is the renowned time of the year when considerable consumer debt is incurred. Often resulting in credit cards creeping well past their safe limits.
The dreaded January moments of reconciliation are painful. So let's reflect on surviving the season of merry credit.
People love to be generous. However, the well intentioned generosity can lead to some frightful financial moments. A frosty thought indeed.
Those who spend a little more than they can afford don't do it intentionally. As we know, stuff often happens.
Perhaps, each of us can attempt a kind and gentle word of wisdom with someone that may fall prey to the financial hazards of generosity. Trusted friends can add perspective on an otherwise frosty topic.
We will need plenty of understanding and empathy. So, let's muster the most tactful approach.
Our concerns may not be always welcomed. Nevertheless, let's try to be helpful.
In the greater scheme of things, incurring non-investment debt is a huge impediment to accumulating the nestegg for the later years.
Some sage advice to pass on:
- Establishing a reasonable allocation for the merry season and trying hard to stay within the guidelines.
- Sometimes, a personally owned stock or mutual fund (outside the RRSP/RRIF) may be sporting a loss. It may be time to take the medicine, selling it and using the proceeds to reduce a loan or credit card debt.
- Arranging a line of credit and transferring outstanding credit card balances to it. The rate is likely to hover around prime plus 1% to 2%, versus the 18% to 20% for many credit cards. Moreover, applying the savings in interest to repay the outstanding principal really pays off.
- Making the minimum payment on credit cards is a mug's game. At rates in the 18% ballpark, it will take a lifetime to pay off the outstanding balances.
- Minimizing the use of high interest rate credit, such as credit cards, takes discipline. Switching to a lower cost loan makes sense, but it's wise to resist the temptation to run up the cards again.
- Carrying the actual cash earmarked for the purchases may be the better choice instead of using credit cards. Especially, for those who have doubts the card balances will be paid off in January.
- Budgeting may be a little foreign. However, squirreling away an affordable amount each month into a “gift fund” for use during the gift giving occasions can be a financial saviour for next time.
Ultimately, the individual has to set the suitable credit boundaries. Using good judgement assists in staying out of financial trouble this merry season.
Resolving to avoid the common pitfalls of easy credit is a wonderful gift. Perhaps, our gift to someone we know is to gently reinforce the idea of staying within our financial means.
One gift to be treasured. The very best of the season to all.
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