July 2013 Articles

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Exercise Caution with Credit; Don't Overextend During Holidays

Exercise Caution with Credit; Don’t Overextend During Holidays Source: LSU AgCenter The excitement and rush of the holiday season often lead people to overextend themselves financially.
That means this is the season to exercise caution so you avoid getting caught in the "credit trap," says LSU Agricultural Center family economist Jeanette Tucker.
"Credit has been a godsend for many Americans," Tucker says. "For a few, it has become a plague."
Using too much credit can create a variety of problems. But many people misunderstand and misuse credit - believing it gives them more spending money than they actually have, Tucker says.
"Use of available credit should be thought of as an increase in debt - not an increase in salary," she says, stressing, "Simply having a credit card available leads consumers to spend as much as 34 percent more than they ordinarily would."
That means many families build up credit card debts on impulse rather than out of necessity.
"Impulse buying with credit can cause us to be overly generous when purchasing Christmas gifts, to buy top-of-the line merchandise, to purchase things we would never buy if we had to pay in cash or to buy more than we need to avoid charging a small amount," Tucker says, adding, "More than half the things we buy are impulse purchases. And impulse shopping causes us to spend nearly three times more money than we had originally planned to spend."
Tucker says half the impulse items bought are unnecessary and seldom compared for cost or quality.
The LSU Ag Center adviser says shoppers should use credit only for things that will last long after they have finished paying for them - or for emergencies such as medical bills.
"When using credit, remember it will result in your owing money that you must pay back from future income," she says. "So use credit only when you are sure you can pay your bills without giving up other things you need more."
Tucker also says before using credit, ask these questions:
Do I really need the goods, the service or the money?
How will the added payments fit into my present budget?
Will this item last longer than the payments?
Will I want this item as much later, when I am making payments, as I do right now?
Will this item increase income, save time or health?
How much will using credit increase the total cost?
If I lost my income, how would I make payments?
Am I using credit for convenience with a sure means of paying later, or am I using credit because I do not have the means to pay?
Am I dealing with a fair and honest lender?