Credit and debit cards make it so easy to make purchases, but they also make it easy to overspend. You can go on shopping sprees without ever leaving the comfort of your home. You can pay bills with the click of button. Unless you’ve told your bank not to process overdraft transactions, they won’t stop you from spending more than what’s available in your checking account. And if you’re short on funds and have decent credit, you can get a credit card in less than two minutes.
Overspending – as good as it may feel in the moment – won’t end well. The longer you keep up this dangerous habit, the worse it will be for you. Here are a few consequences of overspending.
You may be late on bill payments. Overspending can leave you without enough money to pay your bills when the due dates roll around. Your billers won’t come knocking on your door after you’ve missed a payment, but there will be consequences. Not only will you have to pay a late fee, but your credit score could suffer if you’re more than 30 days late payment on a credit card or loan. Some monthly services could be disconnected and you’ll have to pay reconnection fees on top of the late fees. Missing payments could make it difficult to get approved for credit cards, loans, and other services.
You can’t afford to save money. Without money in a savings account, you don’t have access to funds in case of an emergency, unexpected expense, or life-changing event like a divorce or job loss. Saving money is important even if life is smooth and emergency-free. You’ll want to stop working one day. If your constant overspending keeps you from saving for retirement, you might have to continue working long after all others your age have left the workforce.
You won’t have extra money for paying off debt. Becoming debt free is one of the best moves to secure your financial future. Not only will you save money by paying off debt, you’ll also lower your cost of living since you have fewer monthly obligations. However, overspending will leave you with less money for putting towards your debt. Even worse, overspending may increase the amount of debt you have.
You may overdraft frequently. If you overspend your bank account, most banks will cover overdraft transactions as a “courtesy” to you. Of course, they’ll charge a fee for this courtesy. Overdrafts can make a bad situation worse. When you finally deposit money into your account, a portion of your deposit will go toward clearing up your negative account balance. So, if your account balance is negative by $150 and you deposit $700, you’ll only be left with $550 to spend. Unless you correct the overspending that caused you to overdraft in the first place, it’s likely that you’ll end up in the situation again.
You could end up with higher credit card balances. One of the results of overspending is maxed out credit cards. These high balances can have a snowball effect on your finances. With all your credit cards maxed out, you’ll have to live on your actual income, which may not be enough to support your current spending levels and your higher credit card minimum payments. This could lead to late payments, higher interest rates, damaged credit, and an inability to make ends meet.
Dipping into savings, frequently overdrafting your checking account, and using your credit cards to make ends meet are all signs that you’re overspending. Reducing your spending is the best way to reduce the effects of overspending and turn your finances around.