Overspending a common problem during the holidays

With last month’s credit card bills to arrive in the coming week or so, Virginia Peschke expects to see more people come through the doors of the nonprofit she heads looking to get a handle on their holiday spending.

Americans collectively had $856.9 billion in outstanding credit-card and other revolving loan debt in November, a number that edges up each year before dropping again in January, according to statistics released this week by the Federal Reserve System.

Overspending is the most common financial problem for families this time of year, said Terry Maryniw, the owner of Maryniw Financial in Lake in the Hills.

“It’s hard if you’re a family,” he said. “It’s hard to say no to your kids. You want them to have a good Christmas, but you need to be able to put food on the table and pay the rent.”

That’s why he and other financial advisers recommend that people put together a budget, assessing their financial situation and laying out what their income is and their bills are.

This type of planning can help people prevent overspending during the holiday season, but it also is necessary to help them get back on track, said Peschke, the executive director of Consumer Credit Counseling Service of McHenry County.

Peschke’s nonprofit offers free credit counseling; it also has a debt management program, in which participants can have their debt consolidated on to one account with a lower interest rate. The fee to participate is based on a sliding scale and requires participants to close their credit cards.

Most of the advice financial planners give centers around getting the debt off the credit cards, which can carry high interest rates.

“What is really killing people is the interest rate on those credit cards,” said John Piershale, a certified financial planner with Piershale Financial Group in Crystal Lake.

Moving that debt from a credit card could be done by opening a new credit card with a zero percent or low interest rate and rolling the debt on to that card, if the person has a good enough credit score, Maryniw said.

The debt also could be consolidated into a home-equity loan, although the risk is that the house is used in collateral, Piershale said. If payments aren’t met, the house can be foreclosed on.

Some retirement plans also let people borrow against them, but that method also carries risks, he said. If the loan isn’t repaid according to plan, it can be considered an early distribution, which is can be subject to a 10 percent penalty and the income tax.

Those who look to these alternatives need to make sure they have the ability to pay, Piershale said.

That’s why Peschke said she tends to advise against going that route.

“If you haven’t adjusted your spending and your habits, you’ll be back where you were with credit-card debt plus your mortgage payment is higher,” she said referring to debt consolidation through a home-equity loan. “There is no magic bullet, so I’m skeptical about some of these other options.”

With the economy improving, Piershale hopes credit-card debt will become a less common problem.

The amount of outstanding credit-card and other revolving loan debt hit a peak of over $1 trillion in December 2008, according to Fed statistics. It fell to just under $792 billion in April 2011.

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