Yes, we all know those Black Friday deals can be hard to resist, and sometimes they can be really good deals. However, you need to set a budget a stick to it! Overspending is never a good thing even when the deals you are looking at seem to be too good to be true. The National Association of Credit Counseling came up with these 10 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.
To help avoid overspending on Black Friday and throughout the holidays prepare a realistic budget and stick to it! Your budget can be as simple as a spreadsheet with the amount you want to spend and the amount you do spend. If you can stick to this budget, when January and February of 2014 rolls around you and your family will start the new year off on a much better footing!