The Advantage Advisor

Volume 3 / Issue 10/ 2008
This Issue:
Reading a credit card statement
Go “paperless” with your bills
Tips for holiday gift buying

Buying children’s gifts on a budget

The holidays are just around the corner and children everywhere are starting to create their gift “wish list.”
While children make lists that can take up pages, it’s important for adults to stay grounded in reality and make sensible shopping choices when it comes to holiday gift-buying for the little ones.

First, set a spending limit for each child on your shopping list. Make sure the amount fits into your budget and that you can afford to pay cash for the gifts, or pay off the credit card bills as soon as they arrive. Too many people get caught up in the spirit of holiday buying and find themselves mired in post-holiday debt once the frenzy and festivities are over.

If a child gives you a wish list, ask him or her which items they want most on the list. This is a good time to teach children about prioritizing their wants and needs. If a child really wants a pricier gift, have several family members pitch in on it. Or, if you have several children in a family, consider giving them a family gift instead of individual gifts.

Consider an old adage on gift giving for children that helps limit the number and kinds of gifts you buy: “Something they want, something they need, something to play with, something to read.”

Remember that very young children don’t need a lot of gifts. We love to shower infants with gifts, but consider if that is really necessary.

Look for gently used items at yard sales, in the classified ads or through online auctions and web sites such as Craig’s List.

Shop early. Though the day after Thanksgiving is traditionally the kick-off to the holiday shopping season, keep your eyes open for sales throughout the year. Plus, many people get stressed out shopping when the stores are crowded and end up spending more money than they planned. Shopping ahead of time will reduce your stress.

Dear Debt Monkey

Q: I’m really struggling to pay my bills. I’ve been considering borrowing money from my 401k to get by. Is this a good idea? Do I have other options?

A: In general, borrowing money from your 401k is not a good idea.

First, you will be losing interest on the money you withdraw from your account.
Second, money that you put into your 401k is not taxed until you withdraw the money at retirement. The money you use to pay back your 401k is money you have earned after taxes, so technically the money isn’t tax-free anymore. In fact, you’ll essentially be double-taxed, once when you pay yourself back and a second time when you withdraw the money at retirement.

Third, if you fail to pay back the loan within the designated amount of time it is considered a premature distribution (meaning you got your money before retirement), and you will have to pay income taxes on the money.
If you are in a financial bind, there could be other options available besides borrowing against your 401k.
A certified credit counselor can help you look at your budget and explore other options besides borrowing from your retirement money.

Tips for holiday gift buying

Instead of spending hours looking for the perfect gift for every friend and relative on your list, why not buy yourself some time and reduce your holiday gift buying.

  • Do a grab bag with family members. Each person picks a name and only buys a gift for that person.
  • Consider one gift for a whole family, like puzzles, board games or movies.
  • If you have an extended family full of kids, consider approaching relatives about agreeing to only buy for the kids.
  • Instead of buying gifts for friends and family on your list, offer things like an evening of babysitting, snow shoveling service or grass cutting.
  • Take the money from your gift-buying budget and a make a charitable contribution in the names of your friends and family.

Reading your credit card statement

A credit card statement is sent to an account holder that has an active account to summarize the charges, payments and other activity on the account. The statement includes many terms that can be confusing. Here are some explanations to help you better understand the terms.

Billing Date

Sometimes referred to as a statement or closing date, it is the cut off date that a transaction (charges or payments) will be reflected on the statement. The statement is generated and sent to the consumer approximately two days after the billing date.

Billing Cycle

The time period between one billing date and the next.

Due Date

The due date is the specific date by which the credit card company must receive your payment. For example, your billing date is 5/22/08 and your due date is 6/17/08. The period between the billing and the due date is usually between 20 to 25 days. This time period is the time allowed for the statement to get to you and the time you need to get the payment to the creditor. Federal law states the bill must be mailed to the cardholder at least 14 days prior to the payment due date. When the creditor receives a payment after the due date the customer can be assessed a late fee ranging from $15 to $39.

Transaction and Posting Dates

The transaction date refers to the date the cardholder made a purchase and the posting date refers to the date the transaction actually got posted to your account. With improved technology these dates are normally concurrent.

Grace Period

The time between the posting date of a transaction and the due date during which any new purchases made will avoid finance charges during that billing cycle. Most cards provide a grace period only if the previous month’s total balance was paid in full and on time.

Minimum Payment

The payment amount required by the creditor and no less can be paid without consequences.

Credit for Merchandise

If you return merchandise bought on credit, the merchant will issue you a credit receipt. The credit is charged back to the credit card company and eventually to the merchant. The credit should appear on your next billing statement.

Correcting Statement Errors

In 1975 the Fair Credit Billing Act went into effect. This Act was intended to help consumers who wish to dispute billing errors on their revolving credit accounts. When a transaction is in dispute, the amount is charged back to the originating business.

Withholding payment to the credit card company is permitted when the cardholder alleges a billing error, fraud, or when a goods and service dispute has been reported and a good faith effort to correct the problem has taken place with the merchant.

The Fair Credit Billing Act applies only to goods and service disputes exceeding $50 made in your home state or within 100 miles of your current mailing address. However, most merchants acknowledge the Act regardless of the geographic distances involved.

Billing error complaints need to take place within 60 days after the first bill containing the error was mailed to you. The lender has 30 days to acknowledge your dispute, and within 90 days they must correct or send verification of the validity of the charge.

It is important that you open and review your credit card statements every month. If there is any information on your statement that you do not understand, you should contact the creditor immediately for clarification. Remember, you only have one billing cycle, or about 20 days, to contact your creditor with questions before your payment is due.

The Advantage Challenge

ACCS is challenging you to …
Reduce the amount of paper coming into your home.

Consider going “paperless” with your bills. Many banks and creditors will now send online statements and stop mailing paper statements.

You can also pay many bills online, thereby eliminating the need for checks, envelopes and stamps. Going paperless can actually help to save you money!

If you find a lot of unwanted paper in the form of credit card offers in your mailbox, you can put an end to that

too.
By calling (888) 567-8688 or by going to optoutprescreen.com, you can request a stop to unsolicited credit card offers in the mail.

Resources

FTC information about the Fair Credit Billing Act:
www.ftc.gov or 1-877-382-4357

The Dollar Stretcher for frugal holiday ideas: www.stretcher.com

Bankrate Retirement Calculator: www.bankrate.com/brm/calc/401kl.asp

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