How holiday spending can come back to bite you in the New Year
By A.J. Wagner
There should be tornado warnings in December. Every year as the holidays approach, consumers get swept up in a vortex of debt as they run up the credit cards and other forms of lending to make a special occasion for their families. Like tornadoes, there are varying degrees of intensity to this necessary calamity of modern life.
At category 1, some borrow and pay the debt off when the bill comes. This is not likely to cause any harm and may even result in the accumulation of some air miles or reward points.
At category 2, one might pay 10 percent interest over a period of time. If one borrows $1,000 at 10 percent interest and pays back 2 percent of the balance each month with a minimum payment of $15 the money will be paid back in seven years with $402 in interest. The concern here is not just the $400 cost but that there will be seven Christmases between the run up of the first debt and the pay off. The likelihood is that more debt will be added each December spinning the debtors’ finances further and further out of control.
Some pay as much as 25 percent over a much longer period of time for credit. This happens especially to those who miss credit card payments or those who are not very credit worthy to begin with. The added interest is like an insurance policy for the lender. The lender will make up for defaulted loans from those who manage to pay the extra premium. Let’s call that a category 3.
The next category involves a person who pays back their debt by getting payday-type loans. These are short-term loans of a few weeks to a month that are designed to get a person to their next paycheck. Even though Ohio has created some important limitations for these loans, they can still be obtained over the internet where the fees and interest rates combine to exceed 100 percent and more of the loan. In Ohio payday loan companies are limited to 28 percent interest on a yearly basis. Lenders in Ohio can only charge up to $1.08 as finance charges on a $100 loan issued for 14-days but that is the equivalent of adding another 28 percent annual interest to the loan, bringing the total interest to 56 percent.
Category 5 is Bankruptcy Court. It comes when one has progressed through all of these stages and can no longer meet the obligations incurred. Although bankruptcy creeps up through the accumulation of debt over time it most often comes with the final blow of some overwhelming event such as loss of job or unexpected illness. It is the loss of income or the sudden increase in expenses that takes most people over the brink to seek bankruptcy protection.
If you don’t make payments when they are due, the lender may be able to take back whatever merchandise you purchased with the money lent. This may not be true with a regular credit card purchase but it is likely to be true if you have signed a purchase agreement at the store or car dealer even if it was placed on a credit card. Bankruptcy may help you keep some of the purchased items. (That’s another column.)
So where’s the storm shelter?
To start with, don’t run up the bills. Try to set a budget within your means. When unexpected expenses come your way, rework the budget by cutting back on other things to make up the difference until the debt is paid down.
Also protect yourself to the extent possible by reading what you are asked to sign. It will take time and a good pair of glasses or a magnifying glass, but at least you’ll know what you’re getting into. If you don’t like what you see, or if you don’t understand and can’t get a good explanation, walk away. It may not be a good deal if the paperwork is part of the deal.
Don’t sign anything with blank spaces! The nice salesperson may innocently fill in the wrong numbers after you leave the store and find out the next day she’s been laid off. Her boss will make you live with what was signed and will know nothing about what you and the salesperson agreed to. There are seemingly nice salespeople who aren’t nice at all. Don’t become a victim to their scam.
Add up all the figures and make sure the totals are correct. Take your time! Don’t be rushed into something that might impact you for a very long time.
Have a great Christmas or whatever holiday you choose to celebrate this season of holidays and keep your wallet safe. Then for the New Year, make that budget and stick to it longer than you stick to the diet.
Disclaimer: The content herein is for entertainment and information only. Do not use this as a legal consultation. Every situation has different nuances that can affect the outcome and laws change without notice. If you’re in a situation that calls for legal advice, get a lawyer. You represent yourself at your own risk. The author, the Dayton City Paper and its affiliates shall have no liability stemming from your use of the information contained herein.
A.J. Wagner is an attorney with the law firm of Flanagan, Lieberman, Hoffman and Swaim at 15 W. Fourth Street in Dayton. A.J. and his firm would be glad to help you with all of your legal needs. You can reach A.J. at (937) 223-5200 or at AJWagner@DaytonCityPaper.com.