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PhotoConsumers have been doing a good job of paying down their credit card debt over the last couple of years so it would be a shame to see them fall into a high-interest trap at the stores where they shop.

With most holiday shoppers planning to spend an average $750-$1000 this holiday season, it's easy to be tempted by those “90 days same as cash” offers at a retail store. Odysseas Papadimitriou, CEO of CardHub.com, says that can be a trap.

While deferred interest payment plans provide an interest-free period during which customers can make payment and may therefore seem awfully similar to those zero percent introductory interest rates that credit cards offer, there’s a crucial difference: if you don’t pay off your entire balance by the end of the deferred interest period, interest is retroactively applied to the entire original balance, rather than simply whatever balance remains at that time.

Taking these offers at face value

“When consumers see a no-interest offer, they tend to take that at face value, thinking they’re gaining a true respite from finance charges for the advertised length of time,” Papadimitriou said. “That’s why deferred interest is both so dangerous and reminiscent of the ‘gotcha’ type practices that were prevalent prior to the Great Recession and subsequently outlawed by the CARD Act.”

If you don't read the fine print of the credit agreement -- and most of us don't -- you might not know that you are on the hook for full interest charges until you get the bill.

“The average household already has $6,700 in credit card debt, we’re expected to incur $43.5 billion in new debt this year, and the economy is still on shaky ground,” Papadimitriou said. “We don’t need hidden costs adding to our problems.”

More than 80 percent of retailers offer a financing option. Keep in mind, and agreement to defer interest if you pay it off in a set period of time means exactly that. If you don't pay it off in the allotted time, you will own full interest on the entire amount of the purchase.

Lack of transparency

Papadimitriou says more than half of the retailers who offer some type financing plan are not transparent about the policies, meaning the consumer must carefully read the fine print before signing anything. Even companies like Apple and Amazon, he says, offer deferred interest, which he calls a “decidedly misleading and potentially harmful financing option.”

Maybe you are aware of the terms and conditions of a store's deferred interest plan -- here's another reason to exercise caution. You may think you will be able to pay off the balance in the alloted time.

But things happen. Suppose an unexpected expense prevents you from doing that. That will mean that you will have to pay the interest -- and it can be at a steep rate -- on the entire purchase, not just the balance when the time allotment expires.

Papadimitriou, a fomer executive at Capital One, says he thinks deferred interest plans should be abolished or regulators should require more disclosures.


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