Cure for a Credit Hangover

Guest Post by Paula Drum

Often, the cheer of the holiday season can be all consuming and shoppers forget that unlike Santa, their budgets are real. The exhilarating high of making a memorable December is quickly forgotten when the next year’s financial hangover settles into our banking accounts.

So what can you do to rebound from the holidays and start anew this year?

This post will provide suggestions to those relying on credit to create a budgeting plan. We’ll begin by taking a look at one potential cause for a financial hangover, and then discuss how to start a credit budgeting plan to alleviate and prevent future financial hangovers.

 

The Cause

One catalyst for a financial hangover takes the form of credit purchases. Evaluating the total price paid for credit purchases is an area that people often neglect when using plastic. If you don’t pay off your credit card bills in full every month, then you are financing your purchases and need to add in the interest costs to your budget. Budgeting credit purchases based solely on the price paid during checkout can put you in a difficult financial position.

 

The Cure

If you are a person that relies on credit, you should plan a 2010 credit budget. To create a successful plan, it is imperative that you take the time to research total purchase cost, which includes the retail price plus interest accrued over time. To avoid creating “perma-debt” this credit budget must outline both the total cost of your purchases and how long it will take you to pay off the debt. Before you decide to make a credit purchase, follow these steps:

  1. Tally the retail price of your purchases – “The retail cost of this purchase is $219.99”
  2. Target a date to pay off your debt = “Based on my budget, I can pay this off in four months”
  3. Estimate your total cost plus interest

 

Of course your total credit card payment will depend on your particular card and the balance you currently have on your card.  But you can estimate your real purchase price with interest to make an informed decision.  Try a loan calculator at a site like Bankrate.com.  After all a credit card line is a form of a loan.  Note that many calculators list the length of time in years. If you plan on paying off the loan in less than 12 months you’ll need to convert it to a fraction of a year (4 months divided by 12 months =.33)

Using the Bankrate.com loan calculator, the total cost to pay for this purchase over four months with a 14.9% interest rate is $226.81 broken into four monthly payments of $57.27.

Making good spending decisions depends on having the right information. By creating a credit budgeting plan, you’ll have complete transparency regarding the total cost of using credit and know exactly when you’ll have a zero balance.

Unfortunately, being able to calculate your total cost plus interest may not always be convenient when shopping. One avenue where you may find a better deal is by researching retailers with alternative payment plans, such as Gettington.com, that provide a choice of payment plans along with a clear breakdown of a total purchase cost and interest paid before you make a purchase.  Transparency in understanding your total cost before you make your purchase enables you to make better budget decisions.

Remember: if you’re hungover, you take aspirin, have a greasy breakfast, get hydrated and sometimes swear that you’ll never do that again! Treat a financial hangover the same way. By creating a credit budget and researching the Web, you’ll be on the road to recovery and well-equipped to avoid future credit headaches.

How do you plan to budget credit purchases in 2010?

 

About the Author

Paula Drum is General Manager of Gettington.com, an e-commerce retailer that provides three payment options to help customers budget purchases that fit their individual financial needs.

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