Holiday overspending can lead to credit card debt

Overspending during the holidays leaves some people grappling with a pile of unpaid debts, a fact that New Yorkers should be mindful of this time of year. Some people only learn the hard way and spend years paying that debt off. The best way to deal with the problem is to look at the underlying realities and then make smarter decisions.

First, remember that credit cards are loans with the unpaid principal rolling over from one month to the next along with compounding interest. In effect, both the principal and the interest earn additional interest, and late fees and fees for going over credit limits can add even more, creating a rolling snowball of debt.

Second, excessive holiday use of a credit card limits the credit available for other things, the most important of which are emergencies. Enough credit should be left in the card account to act as a safety net to cover urgent problems such as car repairs and serious illness. Money that goes to paying off debts is also not available for investments and savings.

Third, high levels of debt make missing a payment far more likely. Delinquent payments immediately affect a credit rating, which can then affect employment, future borrowings, availing services and utilities and insurance payments.

Fourth, unpaid debts can lead to unpleasant calls from collectors, expensive lawsuits and garnished wages. Financial challenges are the leading causes of personal stress and one of the major causes of divorce. People who are desperate to extricate themselves from massive debt often end up pawning personal property, taking out salary or payday loans or filing for bankruptcy.

Debt-relief options are available to anyone who needs a fresh financial start. A person struggling with debt should seek sound financial advice from a bankruptcy attorney to assess the best options.

Source: The Buffalo News, “Holiday Debt Can Turn Joy into Sorrow,” Samantha Maziarz Christmann, Nov. 18, 2013