News Column

Unwrapping Options for Extra Holiday Cash

Nov 15, 2012

By Susan Tompor

extra money

Here's a money-saving thought: Can you find holiday cash in the car seats? No, not just a few stray nickels and quarters.

Different ways to create holiday jingle are popping up - finance deals, credit cards and yes, even some car loans.

Walmart is running a no-interest for 18 months promotion on electronics bought for $429 or more for customers using a Walmart credit card at the stores through Nov. 30.

Ford Credit has sent select customers offers to skip the next monthly car payment to create extra cash in their wallets. But before saying "Hey, where do I sign up?" it's smart to dig deep into the details.

"Their first question is 'How is this going to impact my score?'" said Dorothy Barrick, financial counselor and group manager for GreenPath Debt Solutions, a national non-profit credit counselor.

Experts say that accepting an offer to defer a monthly payment, not just skipping a payment on your own, shouldn't affect credit scores. It should not be reported to a credit-reporting agency.

Yet, consumers must consider what actions might lead to lower credit scores. Lower scores mean you could face higher interest rates if you apply for a mortgage or other loans.

Obviously, no one should just stop making a payment -- as a missed payment does ding a credit score.

Todd Albery, CEO of Detroit-based Quizzle, a credit-information website that's part of the Quicken Loans family, said consumers could take an extra step and directly ask the company making the offer to specify, in writing, that this deal will not negatively affect the consumer's credit.

"If they won't do it, then don't do it," Albery said.

When it comes to no-interest financing deals, such as appliance or furniture offers, credit scores could take an initial hit if you wait to pay until the end of the interest-only period, Albery said. Once you pay it off on time, your credit would bounce back. Read the paperwork before you sign it.

Albery noted that you could end up creating a "revolving account" when you agree to a limited, no-interest promotion for a year or 18 months. The balance owed would likely be high. Once it is reported to the credit bureaus, it could contribute to a drop in a credit score.

Once that purchase is paid down or paid off, he said, the consumer's score could rise again.

For many consumers, some deals create flexibility in a budget. But you must consider how you're going to spend the "extra" money, too.

"If you're doing it just to blow that money without working within your budget, that's not a good thing," Barrick said.

Look at the fees, too. If you pay a fee of $30 to avoid a $150 monthly payment, you're only freeing up $120 for one month, and it's not worth it.

Look at your interest rate. Think of an extended payment as stretching out a car loan. It's better to extend that car loan with a rate of 5% than borrow an extra $400 or so on a credit card with a 15% rate.

The Ford one-month extension promotion is nationwide. It is being offered to qualified customers only and could have a nominal extension fee, said Margaret Mellott, a spokeswoman for Ford Motor Credit.

The fee depends on state laws. Some states, including Ohio and Illinois, do not allow fees. Mellott said a fee typically would not exceed $25.

Ford confirmed that if a consumer accepts the chance to defer a car payment for one month, there is no effect on the customer's credit score.

As for those popular no-interest-now offers, experts say, watch out so you won't be tempted to spend more to qualify.

The Walmart deal applies only if you buy the electronics on a single receipt. You can buy several items to hit the $429 or more in a Walmart store. It is not valid online. Consumers also must use a Walmart Discover card or a Walmart credit card. It does not apply to Sam's Club.

Some no-interest deals, including the Walmart offer, require a minimum payment each month before that promotional period ends.

Here's another kicker: Interest would be charged to your Walmart account from the date of the purchase if the promotional balance is not paid in full within 18 months. Plus any related optional credit insurance or debt cancellation charges would have to be paid off, too.

Pay attention to what you need to pay off -- and when it needs to be paid. Know what interest rate you'd be charged if you don't pay that balance in time.

A temporary break for your budget does not mean that you can ignore the limitations of your budget. At some point, you've got to pay the holiday bills -- and everything else.



Source: Copyright USA TODAY 2012