What's the first sign that the holidays are upon us? The ugly, inflatable 6-foot Santas on sale with the Fourth of July mosquito candles? The delicate strains of "The Little Drummer Boy" wafting over your back-to-school shopping in September? Or is it the day you take in the patio furniture and realize that since last year's Christmas lights are still up, you might as well just leave 'em there?
As a personal finance columnist, I say it's when the holiday "Skip-a-Pay" offer comes from the credit union. Because nothing says, "Happy Holidays!" like receiving a postcard that implies, "We, your bankers, assume you'll blow the December car payment on candy canes, mistletoe and egg nog, so what the heck. Catch us in January."
A skip in your budget
Many lenders will let you skip up to one payment a year on a car, home equity or personal loan, as well as some credit cards and even mortgages. For some people, skipping a payment can be a good choice in a bad month, but it comes at a cost. And if it becomes a habit, you've got bigger problems than having the world's most obnoxious holiday song send you scurrying for a slug of rum (pum pum pum).
"It's easy to slam skip-payment offers because they cost more — and they do," says Gerri Detweiler, director of consumer education for the website Credit.com. "Interest keeps accruing on your balance and since you aren't making a payment, your balance goes up, not down. At the same time, they can be a godsend when money is really tight. It's better to skip a payment than to not make your payment and get hit with a late fee and ding your credit."
Before you skip away, compare your options. Skipping my $400 monthly car payment once a year adds $85 to the total cost of the loan over four years, according to the loan calculator at www.ultimatecalculators.com. Missing four payments with a $30 late charge would cost me more. But if you're paying $105 a month on a $5,000 credit card balance at 18 percent, skipping one payment a year costs $767 and adds 16 months of payments.
"If you find yourself relying on these offers," Detweiler warns, "or you can't make an extra payment later to make up for it, then seriously think about reaching out to a credit counseling agency for help."
The sound of saving
If it's the cheapest option for finding money to fix the furnace in December, then skipping a loan payment is the way to go. If it's the only way you can plunk a new flat-screen TV under the tree, then you're better off telling Santa to cut back, pick up a second job or find the money by cutting elsewhere in the budget.
A better alternative is another offer from your bank: a savings account. Automatically set aside a few bucks each week in a separate account, and you can coast through the holidays on cash. Start saving around Groundhog Day — about when the malls dust off the rum pum pum pums.
