Peschke: Holiday overspending can have long-term consequences

Millions of consumers are still doing their holiday shopping, snagging sale items either in-person or online, and thereby considering themselves savvy shoppers. At the same time, many lose sight of the fact that regardless of the price, a bargain isn’t a smart purchase if it compromises a shopper’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. Emotional spending during the holidays is often the tipping point that pushes people over the edge financially, as common sense can take a backseat this time of the year.

To help consumers remain financially responsible during the holidays, here are five reminders of the long-term consequences of over-spending, some of which can last long after the tree is taken down and the ornaments 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 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. Using tomorrow’s money for today’s expenses compromises 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, it distracts people from their jobs and home lives, interrupts sleep and potentially causes marital strife.

With the economy still on shaky ground and job security not something to be counted on, it makes no sense to self-inflict financial damage this holiday season.

If you haven’t finished shopping yet and are visiting the stores for last-minute items, here are some tips to squelch the urge to splurge:

• Do not carry your checkbook or more credit cards than you will use during that shopping trip. If your wallet is lost or stolen, this will limit the damage. Tip: Make a copy of the front and back of all credit cards, and put the list in a safe place at home. In an emergency, you will have easy access to a list of all your cards, the account numbers, and the bank’s customer service number to report the incident.

• Do not carry large amounts of cash. Even if you are committed to paying for your purchases with cash, be aware that pick-pockets take advantage of crowded areas and distracted people. Tip: Instead, make frequent trips to the ATM to replenish your stash of cash. Or, consider using your debit card for transactions, being sure to hang onto receipts and record in your check register to avoid overdrafts.

• Do not shop without a list. Santa thinks it’s a useful tool, and so should we. Tip: Make your list specific. Don’t just include the names of those for whom you need to purchase a gift, but also include the specific item you’re looking for, and most importantly, the amount you intend to spend. Having an overall holiday budget floating around in your head isn’t good enough. Without a plan, you’ll likely get caught up in the hype and overspend in the blink of an eye.

• Do not shop while in a hurry. You’ll end up spending more than you should simply to be able to mark the item off your list. Tip: Stick to the list you made earlier and avoid buying anything not on the list.

The holiday season and the aftermath will be much more enjoyable if you haven’t loaded yourself with debt.

• Virginia Peschke is executive director of Consumer Credit Counseling Service of McHenry County based in Woodstock. Questions on any aspect of credit, debt or mortgages are welcome at 815-338-5757.

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