Debt the Halls

Written by Michael Lee Simpson

It’s amazing how different the world has become at the end of 2015. It’s not so much the jingling bells on Santa’s sleigh anymore that you hear, but those last few coins in your pocket that you’re reaching for, straining to pay the full price on that PlayStation or X-Box. The hammering and drilling of tools at Santa’s workshop are replaced by the swiping of millions of credit cards at the checkout lane. Happy chatter from the elves at the North Pole has segued into the voices of your children begging and whining for that new game. As a consequence, ‘Tis the season to be jolly has turned into kicking yourself in January as you look at the numbers in your bank account. Meanwhile, Visa, American Express, MasterCard and Bank of America are rolling in the dough.

Amidst the chaos, it’s a tough choice. Pay now or pay later?

Credit: sworn enemy? Friend? Useful tool? Depending on your circumstances, it can be all three. Forgoing future resources to take advantage of those same resources today is often a difficult, and expensive, problem. When you attain money now for money you will have to pay back, you are simply transferring the timing to pay off the purchase. Interest is comprised of two elements 1) the risk of nonpayment, and 2) the loss of benefits they could receive now by using those resources instead of lending them to another person, known in economics as opportunity cost. Especially around the holidays, people are in a rush, not thinking as they purchase—and then end up paying the interest on top of whatever they paid for gifts.

Credit can be useful, but it can also be painful. It can be viewed as the reason the United States has been able to place a large percent of its population in the position of homeownership through mortgages, and it can also be viewed as the ticking time bomb that exploded to cause the recent Great Recession.

“During the holidays, many people opt to make their purchases using credit,” said Jared Griffith, former Finance Compliance Analyst/Contract Manager at The Centers, Inc., who is now a student at UCLA Anderson School of Management. “The consumer must understand what they are getting themselves into when they purchase on credit. That new Star Wars t-shirt for your Doberman might seem like a good idea now, but if you can’t pay for it in the future it may become a problem that builds on itself. If you bought Fido’s shirt at $20 and can’t make payments in the future, you may wind up making the problem worse and actually owe $40 for a shirt that was only worth $20 when you bought it. This is why we must use credit wisely.”

“IRS audits of restaurant revenues show consumers who pay by credit card are bigger tippers, which means they tend to spend more than someone who pays cash for the same service,” said John Q. Adams, II, Certified Public Accountant at Adams & Company, P.A. “Consumers incorrectly use credit cards as part of their purchase decision (I have the ability to make the purchase therefore I will) instead of considering the credit card as a convenient/secure form of payment. A purchase decision should be based upon need, can I afford it and would my decision to purchase be the same if I made the purchase tomorrow?  If you make the right purchase decisions you will be able to pay off your credit card each month and not pay a premium in financing your purchase,” he said. “That forty dollar dinner placed on a credit card will cost you ten dollars more if you carry a credit card balance for a year. Is this forty dollar dinner really worth fifty dollars if I cannot pay today?”

“Using credit cards for Christmas gifts makes it too easy to overspend,” said Rachelle Lynn, SEO Manager at Kwikiturn Media. “With cash, I can only spend as much as I have in my bank account, no matter how generous I feel. When I paid for Christmas presents with credit cards in the past, I was typically still paying for them for months and after New Year’s. But it’s frustrating to start off a new year with debt, especially when I might need that credit for car or home repairs.”

Allegra Tribble, Office Manager at Gulf Coast Sports. “I think that credit cards can be convenient for holiday shopping and some cards offer great rewards. One downfall is the interest rates, especially if you don’t plan on paying your balance off in full to avoid them. Personally, I feel like credit cards enable me to spend more than I originally planned, so I just stick to cash or debit for all of my holiday shopping.”

“I’ve never had a credit card and don’t know if I’ll ever get one. It’s a scam,” said Stephen Rosedale. “I’d rather save up the money and pay it off. Because why should I pay someone money to borrow money? There are better ways to build credit. Either way, my parents never trusted me with credit.”

“I primarily use debit. I hardly carry any cash,” said Michael Palma, independent filmmaker and musician. “It’s beautiful, the simplicity of a piece plastic being used to transfer funds instead of fiddling around with cash. Cash seems easier to warrant someone to steal you money. If your card is stolen, you can call and shut it down. It’s simpler, but all ways of card or cash pose their own security issues and threats. As for the holidays, I don’t overspend. I generally make a saved budget and buy accordingly. I don’t have all the money in the world, but I make do with what I can only for family and dearest of friends.”

“Credit cards can give use frequent flier miles, AAA access and other benefits but they can also get us into trouble,” Jared added. “So make wise decisions this holiday season. Don’t buy on impulse. Think about what you are doing and how the effects of interest can impact you in the future. Maybe Fido doesn’t need that Wookie shirt after all.”    

“There are people who start shopping for Christmas in July,” said Jenifer Hart, an RN at Ocala Regional Medical Center, “and by the time it gets here they are well-prepared and can focus on the real meaning of the holidays and then there is me. I am a fly by night by the brim of my hat girl and I like to slam my credit cards  full of Christmas gifts and then sort through the train wreck later and then I am usually ready to repeat the following December.”

Mr. Adams offered more of his expertise on the subject, “Consideration should be given to carrying cash for those vendors that charge more for their good or service when using a credit card. It’s not technically interest but it is additional cost for the convenience of using a credit card.”

“I use cash because I don’t want to forget about the payment on the credit card,” said local Kayla Winfree. “I would use credit cards for this Christmas season! It helps me to budget my money and gives me a little time to pay the balance. Buy more, pay later!”

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