Christmas Debt: As consumers dash to checkout counters to charge Christmas purchases to their credit card, many may not be calculating repayment into their household budgets. While credit purchases can help stimulate the economy, it can only do so if charges are re-paid.

Source: Credit Federal

Not only is there a threat to consumer credit ratings, but there is also the threat of financial collapse if creditors are unable to recover funds.

Before purchasing Christmas gifts on credit, consumers must first ensure they will be able to repay these debts timely by creating or modifying their personal household budget.

If a consumer defaults repaying credit card bills, the long term credit worthiness may be affected. Such consumers may find it difficult; or impossible, to obtain new credit, or may be forced to pay high interest rates and/or to provide collateral to secure future credit. And now that the new bankruptcy laws are in affect, consumers will be forced to seek credit counseling prior to filing bankruptcy. The credit counseling requirement can also present a problem, if consumers choose the wrong counseling agency. A credit counselor may be affiliated with a particular creditor, and may not be objective in deciding which lines of credit are repaid before all others. The best way to prevent this problem is to first ensure all debts can be repaid.

Things happen: A consumer's budget may allow for debt repayment today, but what if the family's primary financial provider becomes unemployed, or becomes too ill to work? For these unforeseen reasons, Credit Federal suggests a budget which places money into a savings account, and to not exceed charges beyond 80% of the savings account.

"Because lenders and credit card issuers aggressively compete for customers, it's all too easy for a consumer to exceed their ability to repay debts timely", says David Hurlbert. "And though most will work with consumers to setup a mutually beneficial repayment plan, in most situations a derogatory entry is placed on the consumer's credit report. Try to negotiate a repayment plan that will avoid derogatory credit report entries. Just one bad entry can either deny you additional credit, or can cost you higher interest rates on your credit cards and loans, even for those which you pay timely. Once other creditors and lenders hear of your derogatory credit report entry, they may consider you a potential high risk and raise your interest rates."

Consumers who suspect they may not be able to repay Christmas bills or other credit should immediately calculate a budget and do everything possible to get those debts repaid.