Avoid Credit

For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.

Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills. The poll, commissioned by CreditCards.com and conducted by GfK Roper Public Affairs & Media, surveyed 1,004 randomly selected American adults by telephone Dec. 7-9, 2007 to gauge their attitudes about energy costs in 2008. A majority say they expect oil and gasoline prices to get worse in 2008.

Heating bills are rising at a time when utility companies across the country are broadening electronic payment options for customers, including allowing credit card payments for utility bills. Personal finance experts say paying for basic living expenses with credit cards makes sense only if you pay off the entire balance each month. They also warn that carrying a revolving balance encourages people to live beyond their means while racking up interest charges that can plunge families deeper into debt.

Conserving and cutting back

More than two-thirds of the poll respondents (71 percent) say they will attempt to reduce heating costs by lowering their thermostats this winter. Every American family will need to consider ways to make similar kinds of changes in their long-term energy consumption habits, says Perry Sioshansi, president of Menlo Energy Economics, a San Francisco energy consulting company.

"We all need to make those decisions when we buy appliances, when we're replacing appliances. When the light bulb goes out, buy the more efficient kind and put it in, get the more-energy-efficient insulation for the walls," he says. "These are permanent things that improve the utilization of energy."

He and other oil industry analysts and energy experts expect fuel costs to continue to rise in 2008 -- a situation that could contribute to an overall economic slowdown.

Winter outlook

According to the Energy Information Administration (EIA), the federal agency that collects and distributes data on energy use and expenditures, heating costs between October 2007 and March 2008 are expected to spike by nearly 10 percent for the average U.S. household. The winter fuel projections show the sharpest gains for heating oil users -- especially those living in the Northeast.

"That's where people are really going to get socked," says Neil Gamson, an EIA energy fuel price expert. "Almost all the heating oil in this country is consumed in the Northeast, in New England, the midAtlantic states of New York, New Jersey and Pennsylvania."

Residents of those areas could pay a total of $2,012 over the six winter months -- or an average of $353 a month -- to heat their homes through March 2008. That's a 34 percent increase over the previous winter's bills.

More than half the country uses natural gas for home heating. The highest heating bills will again go to the Northeast, where the average home can expect to pay a total of $1,202 over the winter months -- or about $200 a month. The Western states will have the lowest natural gas bills, according to the EIA. Homeowners there will pay about $557 through the winter.

Help paying the bills

Consumer credit counselors advise homeowners to consider all utility payment options before borrowing to pay the bills. This may include:

Federal, state and local government assistance programs that offer grants to low- and moderate-income families to defray heating bill costs.

Delayed or reduced payment plans offered by utility companies to help customers budget energy expenses, including averaging payments over the course of the entire year to avoid getting hit with a jaw-dropping winter bill.

Charitable programs sponsored by many utilities that solicit donations from paying customers to help consumers who are struggling to pay their bills.

Beware of easy credit options, warns Tom Feltner, policy and communications director at the Woodstock Institute, a Chicago-based economic development research group that specializes in consumer lending.

He notes the CreditCards.com poll data showing that nearly 20 percent of people making under $20,000 a year and 27 percent of those earning $20,000 to $30,000 annually believe they will have to borrow money to make the utility payments during the 2008 winter.

"This is exactly the type of situation where consumers have to be wary of their credit options," he says. "Don't rush into the easiest form of consumer credit. For many consumers, that's often payday loans."

Avoid expensive borrowing options

Convenience checks and cash advances offered by credit card companies carry higher interest rates. "Payday loans," offered by retail lending franchises across the country, are a source of quick cash for people who borrow against their next paychecks. Woodstock researchers have found payday loans can end up costing as much as 300 percent in interest and fees. "When it gets cold we always try to make it clear that payday loans are really one of the most-expensive forms of credit," Feltner says.

He adds: "Borrow from friends and family, dip into savings, look into credit unions for affordable loan products, negotiate a payment plan with your utility provider."