This article was provided by the National Foundation for Credit Counseling (NFCC).
Millions of consumers have begun their holiday shopping, snagging sale items either in-person or online, and therefore considering themselves savvy shoppers. At the same time, many lost sight of the fact that regardless of the price, a bargain isn’t a smart purchase if it compromises a person’s overall financial health.
“If there’s one time of the year when people shop with their heart, not their head, it’s the holiday season,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling® (NFCC). “Emotional spending during the holidays is often the tipping point that pushes people over the edge financially, as common sense can take a backseat during this time of the year.”
As Black Friday approaches, the NFCC offers the following five reminders of the long-term consequences of over-spending, some of which can last far after the lights are taken down and the tinsel is packed away.
- Paying additional interest – Adding new debt to an existing debt load, one which cannot be paid in full when the bill arrives, equals paying a larger dollar amount of interest due to the higher outstanding balance. Even worse, when a balance is carried over from month-to-month on an account, interest is paid on the previous months’ interest. People often boast of buying an item on sale, then pay for it over time, thus wiping out any savings.
- Diminished future borrowing power – An increased level of debt decreases the amount of credit currently available, and could cause lenders to decline applications for new lines of credit or loans. Since no one knows what the future holds, not being in a position to tap into new credit is something to guard against.
- Diminished future buying power – Buying on credit is a contractual agreement to pay the debt later, often with money that has yet to be earned. Committing tomorrow’s money for today’s expenses could compromise future spending.
- Lower credit score – Excessive debt often leads to paying late, skipping payments, and utilizing too high a percentage of open credit, all of which could lower the all-important credit score. Further, applying for new lines of credit simply to save money on today’s purchase will not only increase the temptation to spend, but will show as an inquiry on the credit report, potentially lowering the score.
- Debt interferes with life – Debt is a 24/7 problem, distracts people from their job and home-life, interrupts sleep and potentially causes marital strife.
“Consumers would be well-served to take stock of their current debt obligations before adding to them,” continued Cunningham. “Continuing to pay for holiday expenses well into the New Year doesn’t create the kind of holiday memories anyone wants.”