Q: Is using credit cards for holiday spending a good or bad idea?
A: Using credit cards for holiday
spending is neither good nor bad. It is no different from borrowing
money at any other time of year. The danger is that it is very easy to
overextend yourself and incur more debt than you can afford to repay.
Q: Why do credit card companies seem so willing to extend me credit?
Extending credit is profitable. Each time you use a credit card, you
are getting a loan from the credit card issuer. Credit card issuers earn
interest on the money they loan you when you do not pay off the entire
balance of your credit cards each month. The rate of interest charged by
credit card issuers varies, but it is usually higher than the standard
“market” rate. Credit card issuers earn the most interest when you make
only the minimum payment shown on your bills.
Q: What are the advantages of using credit cards for my holiday purchases?
The first and most obvious advantage of using a credit card is that it
allows you to purchase goods and services without having to pay for them
immediately. Most credit cards allow a grace period within which you
may pay for goods and services purchased on a card without paying any
interest charges. This feature allows you to defer payment for your
purchases, keep your funds in your savings account for an additional 30
days, and thereby earn interest on money that otherwise would have gone
to purchase goods and services. In this way, purchases in December can
be paid in January without costing any interest.
Q: Are there any disadvantages in using credit cards for holiday purchases?
Yes. If you do not pay off your credit card balance in full within the
grace period, you are charged interest from the purchase date until the
day you pay off your balance. Also, the interest rate on credit cards is
greater than the market rate, so if you make only the minimum payment
on your outstanding balances, you pay the maximum in interest while not
greatly reducing the principal amount of your debt. If you make only
minimum payments, you could still be paying for this year’s holiday when
the next holiday season rolls around.
Q: What happens if I can’t make the minimum monthly payment or pay off my credit cards?
If you have charged beyond your ability to pay, the credit card issuer
will take action to collect the debt. The action may be limited to
reporting the debt to credit bureaus, increasing your interest rate to
an even higher penalty rate, or it may involve taking legal action. If
you have incurred debt, you must realize that you cannot simply ignore
Most credit card issuers offer an option to make a
“minimum monthly payment” on credit card purchases. As long as you make
the minimum monthly payment on time, and you have not exceeded your
credit limit, the issuer cannot take legal action to collect the amount
If, however, you cannot make the minimum monthly payment on a
given credit card, or you have made late payments or have exceeded your
credit limit, your options are limited. A good first step is to contact
creditors directly to try to work out a payment plan. Another
alternative if you have multiple credit cards is to seek help from a
credit counseling service. A credit counseling service will try to help
you devise a plan to pay off the debt and to budget your resources,
typically for a small fee.
If consumer credit counseling cannot
solve the problem, then it may be time to consult an attorney to
determine whether or not bankruptcy is an appropriate solution. You
should not take this option lightly. Many attorneys will conduct an
initial consultation with you for no charge to determine whether or not
you are a candidate for bankruptcy.
Q: If I charge something on a store credit card and don’t pay the bill, can the store take back what I bought?
This can happen. A creditor (such as a department store, jewelry store,
hardware store or electronics store) can enforce a security interest on
credit card purchases. For example, if you charge goods with a store
credit card but fail to pay for them, the creditor (department store,
jewelry store, hardware store or electronics store) may be able to take
back the goods.
Law You Can Use is a weekly consumer legal information column
provided by the Ohio State Bar Association. This article was originally
prepared by Canton attorney Anthony J. DeGirolamo and Cleveland attorney
Robert M. Stefancin, of Ice Miller LLP. It was updated by Anthony J.