With Thanksgiving behind us, there’s no more avoiding the holiday shopping season. For many consumers, that means it’s time to confront your finances and figure out where the money for gifts and celebrations will come from.
If you have a loan or credit card, you may have received an offer from your bank to skip a payment during November or December — an option to take a break from that financial obligation for the holidays. These offers used to be more common about 15 years ago than they are now, but they’re still around, said Rich Hyde, chief operating officer of Prestige Financial with more than 20 years of experience in the consumer credit industry. Having your lender’s permission to skip a payment may sound nice, especially if you’re on a tight budget, but before you start shifting money around, there are some things you need to know about these deals.
With an installment loan — an auto loan, for instance — your creditor will add the skipped payment to the end of the loan. For example, if you’re scheduled to pay off the loan in June, your last car payment will now be in July. You’ll also accrue interest on the principal balance during the skipped payment, meaning you’ll end up paying a little bit more by the time you’re done with the loan. With revolving credit, like a credit card, the same concept applies: If you have a plan to get out of debt by a certain date, you’ll push that date back by a month if you skip a payment during the holidays. (You can use a credit card payoff calculator like this one to make a payoff plan.)
“It doesn’t hurt your credit … but it hurts your pocketbook,” Hyde said.
However, if you’re not careful, it could hurt your credit. When he worked for a financing company that offered consumers a break from payments during the holidays, Hyde said delinquencies always spiked in January. People would fall out of the habit of making their payment. Unlike the month when the creditor allows the skipped payment, creditors will report to the credit bureaus any consumers who missed another monthly payment. Payment history influences credit scores most, meaning you could be at risk for hurting your credit if you skip a payment without your lender’s permission.
In Hyde’s opinion, taking an offer to skip a payment so you have extra money to spend on the holidays will cost you more than it will help.
“There’s no real good reason to take advantage of it, unless you’re in dire straights,” Hyde said. Even then, there may be a better way to solve that problem, so contact your lender to see what your options are.
If your creditor sends you information about skipping a payment during the holidays, make sure you read the terms of the agreement and get answers to any questions you may have about the offer before you agree to it.