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, the NFCC 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 of money available for other necessary components of financial stability such as saving or investing.
- Bills not paid on time can have very serious consequences including collection efforts, lawsuits, judgments and wage garnishment. Each of these can have a long-term negative impact on a person’s daily life as well as future borrowing power.
- Overspending can force a person into making desperate choices such as resorting to pay-day loans, pawn shops, bankruptcy or debt settlement.
“Now is the time for financial awareness, not after the damage is done,” continued Joe Stokes, “Consumers need to ask themselves if taking on unmanageable debt this holiday season is worth putting their financial well-being at risk.”
For a quick and easy snapshot of their current financial picture, CCCS of the Ozarks urges consumers to utilize the free online financial self-assessment tool at http://www.mymoneycheckup.org/springfield. Doing so in advance of holiday shopping positions a person to make wise spending decisions, a gift that will last long beyond the holidays.
For help constructing a workable holiday budget, or to discover how to pay off existing debt, call 417-889-7474 or toll free 1-800-882-0808.
Consumer Credit Counseling Service is a local, not-for-profit organization that has been providing financial education to the southwest Missouri area since 1969. Policies and procedures are established by a local board of directors and it is fully-accredited as a credit counseling agency with NFCC certified financial professionals. Visit us on Facebook www.facebook.com/CCCSoftheOzarks or our website: www.cccsoftheozarks.org