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Taking charge! - controlling the use of credit cards

Andrea Davis Pinkney

It crept up on me every year at holiday time. I called it spiritual bankruptcy - that hollow, icy depression that blew colder than a chilly winter wind. It robbed me of my dignity and self-esteem. It snatched my peace of mind when I'd lie awake at night wondering how I would get out from under a mound of credit-card debt.

Spiritual bankruptcy. For me it was annual, beginning a few days after Thanksgiving. I'd whiz through my local mall and shop till I dropped. Moving from store to store, buying gifts for everyone on my list, I'd whip out anything plastic in my wallet that would let me sign now, pay later.

On Christmas morning, my loved ones unwrapped glitzy gifts from the finest department stores. "Where did you ever find this?" "Oh, honey! It must have cost a fortune!"

I'd glory in the holiday cheer and toast to a new year. But my Christmas Day rush was short. Come mid-January, when the holiday's glitter was fading fast, I'd sit at my dining-room table, holding my head, weeping, "Oh God, how did I let this happen - again?" I was spent, broke, hung over with credit-card debt that kept me eating tuna fish until the next holiday season. My mailbox was full of letters from angry creditors. Several years ago I vowed, "Never again!" - and meant it. I took the sharpest pair of scissors I could find and cut up the credit cards that were my biggest offenders - the ones I used for those last-minute purchasers. Then I called several experts and asked how I could get smart about credit-card use and get through the holidays without ever going credit-card crazy again.

Years later, I've given myself two of the best gifts I've ever received - freedom from the bondage of credit-card debt, and the serenity that comes from a card-free Christmas. Here's how you can do it, too:

Remember, money can't buy you love

In his book How to Get Out of Debt, Stay Out of Debt and Live Prosperously (Bantam), author Jerrold Mundis cites buying expensive gifts to win the esteem of family and friends as one of the primary ways in which we get ourselves into deep debt trouble. Mundis says that if you don't think people will appreciate you unless you buy them things, or if you feel you have to prove your love by spending on loved ones, you're headed for a debt spiral.

If you feel you must use your credit card for holiday gifts, Mundis suggests knowing what the card will be used for before you put it in your wallet. Use it only for the intended gift, and immediately write a check to the name of the credit card in the amount you charged, then deduct that amount from your checking-account balance.

Count your cards

"The average American owns about a dozen credit cards," says Luther R. Gatling, president and founder of the Budget and Credit Counseling Services, a national credit-counseling association. According to Gatling, the average American carries $7,000 in credit-card debt. "All you really need is two credit cards - one national-bank card, and one department-store card," he advises. Those credit cards that you keep can work to your advantage when you need a source of identification or when it's not practical to carry cash.

Know how much is too much

Maybe your credit-card spending isn't too bad and you can indulge yourself every now and then - after all, it is the holidays. But is your card use within reasonable limits? "The total of your monthly credit-card payments should not exceed 20 percent of your take-home pay," warns Cheryl Broussard, an Oakland, California-based registered investment adviser and author of The Black Woman's Guide to Financial Independence: Money Management Strategies for the 1990s (Hyde Park Publishing). "If your percentage is higher than 20 percent, it's time to kick the credit-card habit," says Broussard. "The best way to do this is to go cold turkey."

And perhaps the best time is just after Thanksgiving, when the lure of holiday shopping is at an all-time high. Stash your credit cards in your safety-deposit box for safekeeping.

Use your creativity - make gifts

One year I made gift coupons that offered "free" accommodations and an elegant dinner in New York City, where I live. My sister loved her present - and the shrimp creole I made for her. She saved her coupon for six months and spent a summer weekend at my home. The time we shared Homemade gifts are often appreciated and relished more than store-bought trinkets, and they make for a happy Kwanzaa, which stresses making rather than buying gifts. (See "Gifts to Savor" on page 85 for easy-to-make gift ideas.)

Make a list, check it twice

Impulse buys can turn sane holiday shopping into a credit-card nightmare. Before you hit the stores, write a detailed list of all the people you want to shop for. Write down what you want to buy and how much you want to spend. This will help you avoid expensive, last-minute purchases that force you to say "Charge it!" When you see that perfect little something that's not on your list and costs more than you can afford, ask yourself, Would I buy this if I were paying cash?

Shop for a credit card

Not all credit cards are created equal. Find one that works for rather than against you. Most credit cards offer the same advantages, but interest rates and pay schedules vary. Look for credit cards that offer low annual fees and payment grace periods of 25 days or longer. If you usually don't pay off your credit-card bills right away, opt for cards that have the lowest interest rates - just under 19 percent is average. Some credit-card companies don't charge interest when you pay your bill in full. Write to Bankcard Holders of America, 560 Herndon Pkwy., Ste. 120, Herndon, Va. 22070 for a listing of no-fee, low-fee and low-interest credit cards; or contact Card-Trak, P.O. Box 1700, Frederick, Md. 21702.

Shop early and often

Don't put yourself through what I've come to call the Christmas Crisis Hour - those final days before Christmas when I try to cram all my shopping into an afternoon. Consider holiday shopping something to do throughout the year. When you see an affordable gift while cooling out on your summer vacation, buy it and save it for Christmas. You'll avoid purchasing a gift under pressure and you're more likely to make sane, solvent buying decisions.

Also make holiday travel plans as early as you can. Those credit cards that offer sign-and-travel options for the last-minute traveler carry high interest rates for that service.

Make a profit from your card

Use your credit card's grace period to your advantage by making a purchase right after the billing date listed on your statement. "This way you'll delay being billed for your purchase for almost two months," says Broussard. If you pay in full when you receive your bill, you have profited from the free credit for those two months.

Also beware of credit-card promotions that sound like they're saving you money, or promise to "give" you money when you sign up for a new card. Some credit cards that claim they'll send you a cheek when you accept the card are really giving you an advance that you'll ultimately have to pay back at a high interest rate. Always read the fine print.

Open a Christmas club

Remember when you were a kid, and you saved all your pennies in a piggy bank? A Christmas club operates on the same principle. You sign up for a Christmas club at your bank and sock away a certain amount of money per week or month to be withdrawn at Christmastime. Though most Christmas clubs work like a savings account, not all banks provide Christmas clubs that offer interest on money saved. Ask your banker for details.

Christmas clubs are also a good way to teach youngsters that money doesn't grow under the Christmas tree, and that saving money is one of the most practical ways to buy gifts.

Pool your resources

Years ago, to celebrate the Ujamaa principle of Kwanzaa (cooperative economics), my husband and I created an Ujamaa box. We covered a small carton with decorative scraps and cut a slit in the top. Throughout the year, we threw our spare change into the box and then counted it up on the day of Ujamaa during Kwanzaa. We also made a family decision to forego expensive presents for ourselves and others and send our money to charities. As the holidays approached, we sent for literature from a range of charities, then sent a check to those we chose. Now our holidays are filled with the true spirit of giving, and with peace of mind.

Get help

Don't go it alone when battling credit-card and debt problems. Contact these sources for help: * Consumer Credit Counseling Services, (800) 388-2227. * Debtors Anonymous National Hotline, (212) 642-8222. * National Foundation for Consumer Credit, 8611 Second. Ave., Ste. 100, Silver Spring, Md.; (301) 589-5600.

Andrea Davis Pinkney, senior editor, Contemporary Living for this magazine, has been free of credit-card debt for more than six years.

COPYRIGHT 1992 Essence Communications, Inc.
COPYRIGHT 2004 Gale Group