Monday, December 17, 2012

Avoid the December Debt Trick: Don’t Skip a Payment

This past week, I received my December credit card monthly statement from my credit union and the minimum monthly amount due displayed zero in all capital letters.  When I first saw the amount I thought there was some kind of mistake.  As I read further down the statement there was a note that offered me the option of skipping my December monthly credit card payment. 

At first that may sound like a good idea.  But upon further reading the skip a payment option came with a "gotcha".  You could skip a payment but interest would still accrue on your balance.  So, on my January statement I would get the surprise gift of paying two months’ worth of interest plus whatever charges I made during the month of January.   Well, I declined the offer and sent in a payment for my December statement.

The Skip a Payment option is usually offered by mortgage companies, department stores, credit unions or credit card companies at the end of each year.  It can be difficult to resist this temptation.  The offer usually comes during the holiday season when most families are struggling to make end meet or need extra money to buy holiday gifts.

Skipping payments only reinforces bad spending habits.  It seems easy and convenient but costs you more in the long run.  The only one benefiting is the credit card company. 

If you didn't charge anything else on your credit card for the rest of the month of December, you would still owe more money due to the accrued interest added at the end of the month on what you already owed. Some companies charge a fee for using the skip a payment option which is added to the total balance. If you are considering using a "skip a payment" option here are 11 things to consider.

  1. The longer it takes to pay off a credit card bill, more interest and finance charges are added to the balance.
  2. The new minimum payment will be higher and depending on your balance and you may not be able to make the new payment.
  3. The only one benefiting is the credit card company.  Instead of paying now you pay later.
  4. Offers usually sent to customers who have consistently paid the bill on time.
  5. Joint accounts require approval from both parties.
  6. You will not be charged a late fee.
  7. Your credit will not be affected.
  8. Interest accrues during the month skipped and a processing fee generally $25 may apply, a fee may be 70% to 80% of typical late payment fee.
  9. Any fees associated with the skip payment option are due prior to the start of the skip month.
  10. May result in a higher final payment for mortgage loans or home equity lines of credit.
  11. For mortgage loans interest accrues including the principal deferred.
 If something sounds too good to be true, it usually is.

No comments: