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Shop Until You Drop! You have heard the phrase before spewing from the radio and from the mouths of the business leaders and politicians. Go out and do you part for the economy. Wall Street is worried that the holiday season may be bad for business and the economy may slow down, so everyone is encouraging the American consumer to “Shop until You Drop!”
Credit card data from the Federal Reserve shows that the total US consumer debt (which includes installment debt, but not mortgage debt) reached $2.46 Trillion in June 2007, up from $2.398 Trillion at the end of 2006. Most of the consumer spending this holiday season is from credit card and not from disposable income. With high fuel prices and increase in the number of mortgage foreclosures, the same economic experts who encourage us to spend, also tell us that we have no money to spend. That is a recipe for personal financial crisis, which in turn creates a national financial crisis.
With all the excitement and the deep discounts offered by the merchants for the holiday season, you may be tempted to go out and shop. My advice to you is to consider carefully before you pull out that brand new credit card this holiday season, to take advantage of those discounts. Some people shop in December, but when the credit card bill arrives in January, they drop. I have discovered that the phrase “Shop until you Drop” is really a warning to the American consumer. It is a warning because some consumers go out and shop with money they do not have, referred to as credit cards, and when they receive the bills with the high finance charges, they drop.
Consider this example: you purchase an item from a department store using the store’s credit card and the one-day 10% discount coupon from the daily newspaper. To receive the 10% discount you were required to make the purchase using the store’s credit card. You always desired this item and had been watching for a price break for a while; but at $250, you felt it was a bit too much so you waited for a sale. When you got to the store, you discovered that the item had been marked down for the holidays. The discounted priced was $235.99. Using the calculator on your cell phone or PDA, you did the math and discovered that with the additional 10% discount the item will cost $212.39. Wow! The item, which originally cost $250, can be yours for the discounted price of $212.39 – a total savings of $37.61. You purchased it and left the store smiling, perhaps feeling a sense of pride since you did your part to help the economy. The merchants loved you; you had just shopped!
A month later, the first bill for the department’s credit card arrived. For the purpose of analysis, assume that the item for $212.39 was the only item purchased on the card. The card balance shows that amount with a minimum monthly payment of $15, which is due by the middle of the following month. The interest rate of the credit card is 19 percent, and assuming you do what most consumers do, you make the minimum payment on or before the due date. This avoids you having to incur late payment fees. The table below helps to analyze your purchase.
|
Credit Card Balance |
Interest Rate (%) |
Minimum monthly payment |
Months required to pay balance |
Interest Paid |
Total Payment |
|
$212.39 |
19 |
$15.00 |
17 |
$30.01 |
$242.40 |
When you left the store, you thought you paid $37.61 less than the original price of $250. However, paying the minimum monthly payment ($15) on the credit took seventeen months to pay-off the balance. In the end, you paid $242.40 for that item. Your actual discount was only $7.60. Now this assumes that you made the payment on or before the due date each month. If you missed any payments and had to pay late fees, then you would end up paying more than $250 for that item. Now we can better appreciate and understand what the Bible means in Proverbs 22:7 when Solomon wrote,
"The borrower is servant to the lender.” It took seventeen months to pay for the item, and if you missed any of the payments, the credit card company penalized you using late fees. Since only 40 percent of credit card users paid their balance in full each month in 2006 (Source: Federal Reserve Bank of Philadelphia), many consumers are falling into debt because of
late fees and high finance charges.
The next time you are tempted to go out and shop, be forewarned, those who shop with credit cards and do not have the means to payoff the balances, often drop into financial and credit problems. The best advice during the holiday shopping season is to purchase only what you can afford, and it you decide to use a credit card, pay-off the balance as soon as you can. Avoid falling into the trap of paying only the minimum monthly payment since all the discounts you received would have evaporated due to credit card finance charges and late fees.
Check out this online credit card debt calculator to assist you in calculating the finance charges incurred with each purchase. You can use the information to make an intelligent decision
when making purchases using a credit card.
About
The Author
Christopher Sealey is the author of four
published books on the topic of Christian stewardship.
Several topical websites have rated him as an expert author on the
topic of Christian stewardship. He is an experienced
financial counselor.
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electronic version, in pdf format, of this article.
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