- The Washington Times - Monday, December 6, 2004

Financial institutions are recommending that consumers check their credit card balances before going on a Christmas shopping spree that could take them months to pay for.

Personal bankruptcies are at historic highs — though down slightly from last year — and Christmas shopping is off to a slow start, indicating many people may be having a hard time paying their bills already.

Credit card company Visa reports the average household spends 44 percent more than it should during the Christmas season.

“If you make $40,000 a year, you really shouldn’t spend more than $600,” said Kenny Thomas, a Visa spokesman who says households should spend no more than 1.5 percent of their annual income during Christmas.

“It’s really establishing a budget and sticking to it,” Mr. Thomas said.

This year, Visa’s customers are spending at least 15 percent more with debit cards for their Christmas purchases than last year, apparently because they are trying to avoid high interest rates and credit card debt, he said.

With debit cards, “There’s no risk of incurring debt,” he said.

The Federal Reserve reports the average credit card interest rate rose from 12.83 percent to 14.90 percent in the last six months. Meanwhile, households are carrying an average of nearly $7,500 in credit card debt, which means their monthly debt has risen about $70 from higher interest rates.

A late payment could raise interest to default rates, which run as high as 29.99 percent at some banks.

Although bankruptcies are down slightly from last year as the economy improves, they are high enough to indicate debt problems throughout the economy, according to the Administrative Office of the U.S. Courts.

Bankruptcy filings dropped to 1.62 million cases through September of this year from a record-high 1.66 million the previous year.

“Despite the drop in filings, bankruptcies remain at historic highs,” the court said.

Another indication of income difficulties consumers are experiencing this Christmas season comes from retail sales.

Retail stores released reports on their November sales last week that showed shopping is down for most of the industry giants, including Wal-Mart, Federated Department Stores, Gap, Nordstrom and Neiman Marcus Group.

Citibank recommends several steps for consumers to avoid overspending.

• Set financial goals and write them down.

• Gather information on household income and expenses.

• After gathering the financial information, find out where you stand in terms of income and expenses.

• Check your bottom line to determine whether you are overspending.

• Keep track of expenses with a monthly expense record.

This story is based in part on wire service reports.

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