Debt: a Christmas gift that keeps on giving

Following the season to be merry comes the season to be indebted. With the average family owing thousands of dollars to creditors, debt counselors worry that Christmas spending sprees may send many into financial white water. Retailers, aware of the heavy burden people are carrying, are offering incentives to lighten the load in the short run, incentives that will raise a person's debt a few months down the road.

People can get up to $1,500 instant credit within 15 minutes, or they can defer all their payments until March, at Bailey Banks & Biddle Jewelers at Montgomery Mall in Bethesda, owned by Zale Corporation. The response has been ``phenomenal,'' says store manager Joan Haney.

``They don't have to start paying right away, so they buy something a little more special. Instead of spending $200 or $300, they may spend $500 or $600,'' she says.

She tells of a man who wanted a Rolex two-tone ($2,200) watch for one of his twin sons. When the other heard about it, he wanted one, too. The father hesitated until Ms. Haney described the deferred billing plan. He opened an account. Later his wife bought him a Rolex, and he bought her one.

``So they ended up spending $13,000 on Rolex watches that neither one of them would have thought of if we hadn't had the deferred billing,'' says Haney. ``It really worked out well.''

Of course, the final chapter has not been written. Perhaps this family can afford such gift giving, but many cannot.

The average family of four will spend $629 on Christmas this year, 4 percent more than last year, according to the United States Chamber of Commerce. While that may not seem a big increase, for some it may be the last straw. In October, Americans spent 19.1 percent of their income, not including mortgage payments, mainly to pay principal and interest on credit cards and car loans. For a family with $40,000 income, that's $6,720 a year, about $2,500 more than in 1982.

Now debt counselors are on red alert. They identify the warning signs for over-indebtedness and suggest ways to prevent it.

Resisting temptation won't be easy, because retailers are going all-out for customers. It has been four years since the last recession, and much of consumers' pent-up demand has fizzled. Low-interest car loans diverted money from Christmas budgets. Many of the new, high-tech gifts that tend to drive Christmas sales, like compact discs and videocassette recorders, have become staples in American homes.

So retailers, who make 30 percent of their sales during Christmas, have adopted strategies akin to the auto companies. Most of the incentives, like deferred billing, stretched-out loans, or instant credit, are just ``new wrinkles'' in last year's practices, says Elgie Holstein, director of Bankcard Holders of America.

More stores are offering them and enhancing them, however. Last year, many stores allowed customers to defer payments for a couple of months; this year, three to six months are not uncommon.

Encouraging Americans to add to their debt this Christmas holds some risk for retailers. For example, Fur Vault, a New York-based furrier, has sent out 25,000 letters giving recipients $3,000 in pre-approved credit. The company is targeting young, working women who may not want to wait for that ``someone special'' to buy them a fur.

But that is precisely the group most likely to be in financial trouble, says Marilyn Morgan, a debt counselor in Alexandria, Va. Though she warns against generalizations, she says the average person she works with is a single woman with no children, aged 26 to 35, with an income of $20,000 to $30,000, and owing $5,000 to $10,000 to 11 or more creditors.

Most creditors are willing to work with delinquent debtors. Often they recommend these people get debt counseling, generally from the nonprofit National Foundation for Consumer Credit, which has 260 offices nationwide. For $20 or less, a counselor serves as an intermediary between the individual and his creditors to lower the monthly payment. Instead of a 5 percent minimum, for example, it may be 3 percent.

What the individual gains is some relief, a new budget, and no black marks on a credit rating. What the creditor gains is a much greater chance of payment. This year, the foundation expects to distribute $175 million to $180 million to creditors that would probably not have seen the money otherwise.

Of course, the best solution is prevention. For that, Americans have to discipline themselves. Notes Ronald Stampfl, a professor of retailing at the University of Wisconsin, ``Retailers are in the business of making money. You can't blame a rooster for crowing.''