Be careful with credit cards |

Be careful with credit cards

Susan Wood, Tahoe Daily Tribune

Financial consultants from South Lake Tahoe to Reno have advice for Christmas shoppers trying to avoid a credit card debt hangover come January.

Spend less than you make.

“Even though the Fed kicked down interest rates 11 times this year, credit card companies haven’t reflected that,” Zephyr Cove financial consultant Jack Marcarelli said Tuesday.

Interest rates for most cards remain at 18 to 19 percent.

Marcarelli said he’s been amazed at hearing some clients and people he knows carrying $4,000 in credit card interest.

“That usually means they have about $40,000 in debt,” he said.

And tax filers are unable to write off the interest since the Tax Reform Act of 1986.

Money magazines report the national average of credit card debt per individual amounts to about $20,000, reflecting a lessened interest in saving money. Marcarelli recommends people have between three to six months worth of income stashed to get over the rough periods.

This example coincides with the fact that the majority of the population will have put away less than $35,000 for retirement by age 50.

“What I fear is that no event, even one as catastrophic as Sept. 11, will change people’s spending patterns,” Marcarelli said.

His second bit of advice? Talk openly about finances.

“You need to communicate with your spouse where you’re going and what your plans are,” he said.

He used his own life as an example. When he and his wife toyed with the idea of having a child, the harsh reality of their long-term financial plan set in. He cited Kiplinger’s estimation that it costs $350,000 on average to raise a child. The couple is still negotiating.

Marcarelli wonders how people swing it.

“They’re probably using their homes to reduce debt,” he said.

Mortgage rates have been at an all-time low this year, prompting a record number of people to refinance.

And that temptation to consolidate bills may give you more money up front, but could hurt you in the long run, he said.

Some people have refinanced so many times, they’re forced to walk away from the house they’re selling with no equity. Marcarelli urges people to refrain from using prepaid wealth to finance the holidays.

Another piece of advice: predetermine the holiday budget. Otherwise, the tendency to overspend exists.

Marcarelli said one woman who recognized herself as a compulsive spender decided literally to freeze her credit cards, rendering them unusable until they thaw out. Consequently, she spent less.

Matt Bowser, director of Consumer Credit Counseling in Reno, altered his message to clients this year. He advises shoppers to spend in order to keep the economy going, but also tells them to keep the spending under control.

It appears moderation is the key this year for South Lake Tahoe residents too.

Sonya Lucero said she’s spent less this year on Christmas gifts, and she’s sure many others have done the same.

“I think that’s why the stores are having so many sales,” the South Shore English teacher said.

Valerie Keith spent a few hundred more this year than her usual allotted $600 because her son’s gift requests have gotten more expensive, but she usually keeps the credit card at home.

The average family spends about $1,100 on Christmas gifts, according to debt counseling agencies.

“I pay cash. If I can’t, I won’t buy it,” Keith said.

The Albertsons employee said she learned the hard way.

And finally, there is always the option to return items after they have been purchased.

California Attorney General Bill Lockyer has issued a consumer alert, warning holiday shoppers to check a retailer’s return policy before buying gifts.

State law gives consumers the right to know a store’s refund policy before making a purchase. The message must be posted if returns are not allowed.

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