It’s that time of year when the majority of us start the task of shopping for Christmas gifts.
While we all want to keep our gift buying costs down, in a lot of cases we end spending more than we anticipated.
Retailers will offer financing incentives to get us to put that major purchase on credit and sometimes offer no payments or interest for a certain number of months, but which we will eventually have to pay off at the end of the term.
If that is not paid in full, then interest will accrue at a higher rate.
A lot of people plan their winter getaway to some place that’s warm and will have to pay for that up front. We will generally utilize our credit cards for those purchases.
And if we don’t have the financial resources to pay them off when the credit card bill arrives, we have to make monthly payments at high interest rates and a minimum three per cent payment to satisfy the payment requirements.
For example, if you have credit card balance of $10,000 your minimum payment will be $300. The majority of credit card companies will charge around 19 per cent.
The best way for everyone to go is for all purchases to be paid for with our own financial resources.
Cash or our financial institution’s debit card should be our first and foremost choices, but in the event we do not have the liquid resources to use we get back to our credit cards.
It’s not always the best thing to do but if you aren’t in a position to fully pay off the credit cards, consider refinancing all credit card and personal debt into one payment by utilizing the equity in your home.
With historically low mortgage interest rates it only makes sense to pay a lower interest rate on the outstanding debt. For example, a five-year first mortgage rate is in the 2.7 per cent range.
Compare that to a 19 per cent credit card interest rate and you can see the huge savings in your cost of borrowing.
On top of that, if you pay the minimum three per cent monthly payment on your credit cards it will take a longer time to pay them off as opposed to the 2.7 per cent mortgage rate.