Americans can be generous – to a fault - and never is that character trait more evident than during the holiday shopping
At this time of year, millions of people
put their financial common sense on the shelf, tucking it away into
a winter hibernation of sorts, thereby making it much easier to take part
in the once per year phenomenon known as Black Friday, the mother of all
shopping days. The problem with this practice is that financial reality is just around the corner, never failing to
emerge in January as a mailbox full of credit card statements.
With avid shoppers counting down the days until the Black Friday
bonanza, Consumer Credit Counseling Service of Northeastern PA
(CCCS) offers the following 10 reminders of the ramifications of overspending:
Adding new debt on top of
old is never a good idea, yet many people will enter the 2013 holiday shopping
season still paying for 2012 purchases. When debt is carried over from
month-to-month, cardholders lose the benefit of a grace period, the time during which a person can pay the
monthly credit card bill before interest begins to accrue. When debt is
revolved, new purchases begin to incur interest immediately.
Paying interest on the interest occurs when debt is carried over from
month-to-month. When a debt is
not paid in full by the due date, interest is added to the balance. This amount adds up over time, creating an
impediment to becoming debt free.
Late fees and over-limit fees can cause balances to grow to an unmanageable
level. Issuers may charge a late fee of $25 with the first late
payment, and with 45 days notice, increase the Annual Percentage Rate (
APR) to a higher interest rate on new purchases. However, consumers who make late payments more than once in a six-month period may be assessed
a higher late fee with the penalty APR also applied to existing balances.
An inability to pay as agreed could
result in negative notations on a person’s credit report, with late or
missed payments remaining on the report for seven years. Further, the
all-important credit scores are based on information in the credit report. Along with other factors and
depending on the extent of the delinquency, the drop could be by as much
as 100 points.
Less credit will be available on existing cards. Credit cards have a spending limit beyond which the user cannot
charge without penalty. Since no
one knows what tomorrow holds, over-utilizing open lines of credit can leave a person without a credit safety net
for future purchases, unplanned expenses or emergencies.
Diminished access to new or additional credit can be the result of
irresponsibly handling existing credit. Issuers are less likely to extend more
credit to a person who cannot manage current debt obligations. If credit
is granted, it will likely be at a higher interest rate.
Beyond credit cards, decisions involving Insurance, renting an apartment,
establishing utility or cell
phone services, or finding employment can be affected by a person’s ability to manage debt.
Servicing a large amount of debt can diminish the amount ofmoney available for other necessarycomponents of financial stabilitysuch as saving or investing.
Bills not paid on time can have very serious consequencesincluding collection efforts, lawsuits, judgments and wage garnishment. Each of these can have a long-termnegative impact on a person’s dailylife as well as future borrowingpower.
Overspending can force a person into making desperate choices suchas resorting to pay-day loans, pawnshops, bankruptcy or debt settlement.
“Now is the time for financialawareness, not after the damage isdone,” said Terri Stocki, EducationDirector at CCCS, an NFCCmember agency. “Consumersneed to ask themselves if takingon unmanageable debt this holidayseason is worth putting their financialwell-being at risk.”
For a quick and easy snapshot oftheir current financial picture, CCCSurges consumers to utilize the freeonline financial self-assessmenttool at www.MyHolidayCheckUp.
org. Doing so in advance of holidayshopping positions a person to makewise spending decisions, a gift thatwill last long after the holidays.
For help constructing a workableholiday budget, or to discover howto pay off existing debt, considerCCCS’s Sharpen Your Financial Focus™ program available online atwww.SharpenToday.org. To beginthe
program, connect directly to theclosest CCCS by calling toll free( 800) 922-9537.