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Dangers of over-shopping

By Marcie Geffner · Bankrate.com
Wednesday, November 28, 2012
Posted: 5 pm ET

Everyone loves a sale, especially during the holiday-shopping season. But no bargain is worth even its best and lowest price if it compromises your overall financial well-being.

Indeed, the negative consequences of a pattern of over-spending can last long after your holiday lights are taken down and your tinsel is packed away.

This timely reminder -- or warning -- comes from the National Foundation for Credit Counseling, or NFCC, the largest and oldest national nonprofit credit counseling organization in the U.S.

While the holiday season is a time of joy, it's also a time when many people shop with their heart instead of their head, NFCC spokeswoman Gail Cunningham said in a statement.

"Emotional spending during the holidays is often the tipping point that pushes people over the edge financially, as common sense can take a back seat during this time of the year," Cunningham said.

Here, courtesy of the NFCC, is a summary the risks:

  • Paying more interest. Adding new debt to existing debt means you'll pay more interest due to the higher outstanding balance. When you carry over a balance over from month to month, you'll also pay interest on your previous months' interest. Buying an item on sale, then paying interest over time reduces or wipes out your price savings.
  • Diminished borrowing power. More debt could result in lenders' refusal to extend any more new credit to you. Not being able to obtain credit at need weakens your financial position because you can't know what might happen to you in the future.
  • Diminished buying power. Buying on credit today with money you haven't yet earned compromises your ability to spend that money in the future. That can trigger a downward spiral of being unable to make your current payments.
  • Lower credit score. Too much debt can lead to late or missed payments and too-high utilization of open credit, which can lower your credit score. Applying for more credit to save money on today's purchase increases the temptation to spend and shows as an inquiry on your credit report, again potentially lowering your score.
  • Debt problems. Too much debt is a 24/7 problem that distracts people from their job and home life, interrupts sleep and can cause 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," Cunningham said.

Follow me on Twitter: @marciegeff.

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