3 Downfalls for Swiping Credit Cards This Holiday Season
Economists expect consumer spending will remain healthy by the end of the fourth fiscal quarter with an expected $630.5 billion in holiday spending alone. Sinking Americans further into debt, the National Retail Federation released data saying the majority of spending will be by swiping that ever handy credit card.
Nick Clemets, a contributor for Forbes online, lists some costs consumers can expect when putting those “best intention” purchases on plastic.
1. High credit card interest rates could cost double
The average credit card interest rate sits at 13.9 percent, according the Federal Reserve. If consumers were to spend $1,000 on plastic and make only the minimum payment, this would cost an additional $350.
Store cards hold a higher interest rate, with an average of 24.5 percent, meaning the minimum payment would render an additional $1,000 in interest alone, sinking consumers even further into credit debt. Clemets advises consumers to avoid using store cards while taking advantage of bank cards transferring balances on 0 percent credit card offers, which can be found at MagnifyMoney. While not everyone will be granted these 0 percent interest rates, many may discover relief in a card offering a lower interest rate than what they currently hold.
2. Auto Insurance premiums may increase
Maxed out credit cards is a sure way to see your FICO credit score drop because credit scores are used to determine insurance premiums. In a study conducted by Consumer Reports, researchers found “single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home.” While using scores is only legal in some states, other states may largely impact your premium on credit scores, especially for those with maxed out balances.
3. Maxed out cards could be more expensive
For consumers on the market for a new home or auto refinancing, credit scores will surely influence the lenders decision on whether or not to grant the loan. Again, this is due to the overall FICO credit scores lenders use to determine approval and interest rates – the more credit debt means potentially lower score translating into higher interest on major purchases such as homes.
Overall, when using credit cards this holiday season weighing the pros and the cons of purchases is one of the most important aspects in practicing healthy spending.
“Think about the total cost of borrowing before you start swiping,” Clemets wrote.