Avoid owe, owe, owe

It’s best to steer clear of the ghost of Christmas past — credit card bills.

MILWAUKEE JOURNAL SENTINEL

MILWAUKEE — When it’s time for Christmas shopping each year, Alberto and Marta Zamora aren’t concerned about having enough money to buy gifts.

Every month, the West Allis, Wis., couple automatically allocate $70 to their Christmas club account at Landmark Credit Union. In October, the money — more than $800 by then — is transferred to their checking account, and they can start spending it without a penalty.

“It’s convenient, it’s there, and we don’t have to worry about how we are going to get something for Jim or Sally or Juan or Maria. We don’t have those worries because we have saved it up already,” Alberto Zamora said.

That’s how the average consumer should save for Christmas season, financial counselors say.

Unfortunately, many people don’t do it that way.

Instead, they charge their purchases on credit cards. And if they maintain a card balance each month, it means they might keep paying for a holiday spending spree the rest of the year or beyond.

“I call it the ghost of Christmas past,” said Kathryn Crumpton, manager of the Consumer Credit Counseling Service of Greater Milwaukee. “It haunts them on their credit-card bills every month. And it might not even be just this Christmas. It’s last Christmas and the Christmas before.”

The National Retail Federation predicts sales of $474.5 billion in the 2007 holiday season. In late January, financial counselors expect to begin seeing new clients whose tiny sliver of that grand total was way bigger than it should have been.

There’s no question that saving for the holidays makes the most sense, financial professionals say. Connie Kilmark, who runs the Madison, Wis., financial counseling firm Kilmark & Associates LLC, said failing to save and then buying on credit without paying off balances drives up the cost of Christmas.

“If you pay after the fact, you pay interest. So that means everything is marked up,” Kilmark said.

But the holiday season already is here, and a lot of people haven’t set aside any money for it. Is it too late to avoid a debt-filled Christmas?

Not necessarily, consumer advocates say. Holiday spending still can remain under control if some planning and budgeting occurs before the visit to the mall. A good place to start, Kilmark said, is to seriously consider what you’ll give as gifts.

Leslie McFadden of the personal finance firm Bankrate Inc. said preparation and setting a budget is crucial. A holiday spending worksheet should include estimates not only for gifts, but for food, decorations and entertainment, she said. Bankrate has a free online worksheet and calculator to help; view it at www.jsonline.com/links/calculator.

It’s best to spread out gift-buying over months if possible, McFadden said. But there are some practical ways to reduce your regular spending and use that money for gifts even when the holiday season is under way.

“For example, you could bring your lunch to work three days in a row and then you’ve saved $15 to $30. That could pay for one present. You just have to make sure you go out and buy the gift rather than just spending it on something else,” McFadden said.

Another in-season tip, she said: “Buy supplies you can reuse. For instance, instead of buying reindeer wrapping paper, you can buy silver or gold wrapping paper and use that later in the year for birthdays and other holidays.”

Kilmark suggests not overspending out of guilt — a parent trying to compensate a child for the pain of a recent divorce, for example.

Before going out on a shopping trip, she said, it’s smart to put a budgeted amount of cash in a sealed envelope for each person on a gift list. That discourages overspending that can throw a budget out of whack.

It’s not too soon — in fact, it’s wise — to begin planning for the 2008 holiday season right now by starting to regularly set aside some money for gifts. Financial counselors favor Christmas club accounts, even though the interest is low, typically well below 1 percent.

“I’m a strong believer in Christmas club accounts for people who don’t want to get hit at this time of year,” Crumpton said.

Christmas clubs have been around for decades but are less prominent in the advertising of financial institutions than in the past. Most consumers don’t have such an account even though they can produce debt-defying results.

One of the good things about Christmas clubs is that a consumer doesn’t need a big chunk of money to start with. An account can be started with as little as $5, and automatic deposits to it aren’t required.

A consumer could buy a short-term certificate of deposit that would pay higher interest as a way of saving for Christmas, but CDs require minimum amounts in the hundreds, if not thousands, of dollars. The same goes for money market accounts. They pay higher interest rates than a Christmas club account, but the best interest rates need minimum balances in the thousands of dollars.

Sharon Mather, senior vice president of Landmark Credit Union Mather said the key to the success of the Christmas club account, aside from the fact that it can automatically be deducted by the financial institution and doesn’t get mixed into other accounts, is the $7.50 fee a saver has to pay if he or she dips into it before Oct. 1.

“The fee kind of dissuades people from taking money out,” she said.