This 'holiday gift' from your bank could keep you in debt longer

  • An offer from your lender to skip a payment can result in a longer loan and additional interest.
  • Many lenders also charge a fee of about $25 to $35 if you take them up on it.
  • Consumer debt now stands at $12.96 trillion, up $605 billion from $12.36 trillion a year ago.
Stack of credit cards on statement
Adam Gault | Getty Images

Thinking about taking up your bank's offer to skip a monthly payment on your loan? It'll cost you.

Around this time every year, as consumers try to fit holiday-related expenses into their cash flow, some lenders offer their customers the option of skipping a monthly payment on car loans, personal loans and credit card debt. While the details of the offers can differ, the result is generally the same: You pay more over the life of the loan.

"These offers are not made out of altruistic motivations," said Greg McBride, Bankrate.com's chief financial analyst. "They are financially beneficial to the loan servicer or lender that's offering it."

These skip-a-month offers usually come with a fee of $25 to $35 that does not benefit your balance.

"If you take a month off, all you've done is tread water." -Greg McBride, Bankrate.com

On top of that, you will extend the life of your loan. With installment loans, the skipped payment usually gets tacked on to the end. And interest continues accruing, which means you will pay more overall.

For skipping a payment on a credit card, the impact could be almost immediate. For instance, say you have a $5,000 credit card balance with a 12.5 percent interest rate. It accrues about $50 in interest each month. When you skip a payment, the interest continues accruing, meaning you'll owe more the next month even if you haven't made new purchases with your card.

"If you take a month off, all you've done is tread water," McBride said.

Consumer debt keeps climbing

Category
Quarterly change (from Q2 2017)
Annual change (from Q3 2016)
Total as of Q3 2017
Mortgage debt (+) $52 billion (+) $393 billion $8.74 trillion
Home equity line of credit (-) $4 billion (-) $24 billion $448 billion
Student loan debt (+) $13 billion (+) $78 billion $1.36 trillion
Auto loan debt (+) $23 billion (+) $78 billion $1.21 trillion
Credit card debt (+) $24 billion (+) $61 billion $808 billion
Total debt (+) $116 billion (+) $605 billion $12.96 trillion
Federal Reserve Bank of New York

Consumer debt now stands at $12.96 trillion, according to the most recent data from the Federal Reserve Bank of New York. The amount is $280 billion more than the previous high hit in 2008, in the height of the financial crisis that led to the Great Recession.

The data also shows that serious delinquencies — those 90 days or more behind in payment — have crept upward for both credit cards and car loans. Those delinquencies now stand at 4.6 percent and 2.4 percent, respectively.

Some lenders offer the skip-a-month payment as a regular service to qualifying customers — for instance, those who have missed no payments in the last 12 months. If you take them up on the offer once a year, it could extend the life of your loan by months.

"The goal should be getting out of debt," McBride said. "Skipping a payment is a step in the opposite direction."