Monday, December 1, 2014

Don’t Get Tangled in Holiday Debt!


     In my current role as New Hope’s life coach, I meet with many clients who have financial assistance needs. Usually, the debt for these clients is overwhelming and they face the loss of their basic needs if something does not change rapidly.

     Unfortunately, once a person finds themselves in this level of financial crisis, desperate steps need to be made in order to get one on the right path to freedom.

The Christmas season is now upon us and many people will be caught up in the moment of impulse buying. By January, one may be calling me to help them recover from unwise choices being made in December. I write this article to address the steps one needs to take now to prevent long term consequences that will affect you throughout 2015.

     The first step is to realistically look at your money. Determine a reasonable budgeted amount that is not taking funds from your basic needs, (like rent, electric and food). If you don’t have the funds, then don’t spend what you don’t have.

     Set Your Limits – Decide what you can realistically afford this holiday season without causing yourself a lot of stress and anxiety. If you haven’t set anything aside for holiday shopping, you may need to use money from a different area of your budget to cover these expenses. For example, if you have money set aside for “fun money” to treat yourself or money set aside for dining out, you could cut back in both of these areas and use the savings towards your holiday spending bill. Remember, gifts don’t have to cost money.

     This will be my first Christmas without my dad. He passed away in August of this year. As I remember back to my best Christmas memories they were the times we spent together. As a kid, my dad would drive us all around through the neighborhood looking at the Christmas lights, or the times spending Christmas Eve as family together. We would first go to Chestnut Level’s candle light service and then return to mom and dad’s house for homemade cookies and punch and conversation. Oh to hear my father’s voice again! One cannot wrap up in sparkly paper the things that really mean the most!

      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 during this time of the year.

     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 your 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. Continuing to pay for holiday expenses well into the New Year doesn’t create the kind of holiday memories anyone wants.

     Final thought, Christmas is a time to celebrate the birth of our Savior. Jesus was not born to offer an excuse to be in financial bondage; He came offering the free gift of salvation.

 Wishing you a Merry and Debt-Free Christmas!

Connie Hanten, BCMCLC
New Hope Life Coach

No comments: