Consumers will pay down debt before shopping

CHICAGO - Any windfalls consumers get this holiday season are far more likely to be used to pay down debt than to splurge on additional shopping, a new survey finds.

The latest poll from the National Foundation of Credit Counseling has consumers overwhelmingly opting to pay down existing debt if an extra $500 should come their way.

The online poll, which attracted more than 8,500 respondents - the most ever for a poll by the organization - found that 77 percent said they would pay down debt while an additional 14 percent said that windfall would be put into savings. Only 7 percent said they would spend it to put more presents under the tree while a mere 2 percent said they would buy for themselves.

The results are in line with the Federal Reserve's reports of declining debt. Last month marked the eighth straight month of shrinking consumer credit as Americans slashed $14.8 billion in debt in September, the latest numbers available, to bring the total down to $2.46 trillion. That's the lowest level since June 2007.

"If there's a silver lining to the financial meltdown, it is that consumers are now becoming more engaged with their personal financial situation and are doing something about it," said NFCC spokeswoman Gail Cunningham.

That, coupled with mixed results from the heavily-promoted Black Friday weekend, doesn't bode well for the busiest shopping season of the year. The National Retail Federation's Black Friday shopping survey found that more people went out shopping but spent less than they did a year ago.

According to the survey, conducted by BIGresearch, 195 million shoppers visited stores and Web sites over Black Friday weekend, 13.3 percent over last year. But they spent 8.5 percent less per person, or $343.31, and were driven only by deep discounts, two-for-one deals and rebates.

While the Federal Reserve doesn't want to discourage consumers from shopping, it is offering advice through an unprecedented series of ads at movies houses on how to protect your credit when the sale signs are everywhere.

Here are the Fed's tips:

Pay on time. Paying your credit card account on time helps you avoid late fees as well as penalty interest rates applied to your account, and helps you maintain a good credit record. A good credit record leads to a higher credit score, which helps you qualify for lower interest rates. Know the date your payment is due. If your bill is due at an inconvenient time of the month - for example, if it's due on the 10th and you get paid on the 15th - contact your credit card company to see if they will change your billing cycle to fit your cash flow.

Stay below your credit limit. If you go over your credit limit on your card, your card issuer could charge a fee and increase your interest rate to a higher penalty rate. To avoid this, keep a record of your spending or check your balance online. Also, be aware that some merchants - for example, hotel and car rental companies - put a "hold" on your credit card based on their estimate of the amount you will charge. This can reduce your available credit until the final charge is processed.

Avoid unnecessary fees. Credit-card companies not only charge late-payment and over-the-limit fees, but also fees for cash advances, transferring balances and having a payment returned. Some companies charge a fee when you pay your bill by phone. Pay attention to the transactions that trigger these fees. If you need a cash advance, withdraw enough so that you don't have to take a second cash advance-and incur a second fee-later in the month. Read your credit-card agreement to learn more about the fees that your credit card company charges.

Pay more than the minimum payment. If you can't pay your balance in full each month, try to pay as much of the total as you can. Over time, you'll pay less in interest charges-money that you will be able to spend on other things - and you'll pay off your balance sooner.

Watch for changes in the terms of your account. Credit-card companies can change the terms and conditions of your account. They will send you advance notices about changes in fees, interest rates, billing and other features. By reading these "change in terms" notices, you can decide whether you want to change the way you use the card. For example, if cash advance fees increase, you may decide to use a different card for cash advances. If you have a card with a variable rate or if you have an introductory rate that is ending, be aware that credit-card companies are not required to send you a notice about raising your interest rate. Interest rates are listed on your monthly bill. Read your bill carefully and take note of any changes.

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