The end of the year is near and people are already planning how to spend their 13th-month pay and bonuses. With so many big purchases on the horizon, paying in installments can be tempting — you can buy the things you need (or want) without having to shell out all of your money at once. But is it too good to be true?
What you need to know before availing of installment plans
Paying in installment means you pay a sum of money in small parts in a fixed period until the amount is paid in full. Many find this payment scheme appealing because you can enjoy your big purchase—for example, appliances and gadgets—now, while paying for it gradually using a future income. But remember that installments are still a form of debt and it can put you in trouble if you’re not careful.
If you’re planning to pay in installments, here's how you can take advantage of this flexible payment scheme and what you need to remember.
1. Make sure you have the money to pay it back.
Installments are best for people who have a credit card to make the purchase, but who also holds a steady job and expects an inflow of cash in the months to come. “You can't buy something with money you don’t have,” shares Arielle O’Shea, a personal finance expert, to Mic.com. “Make sure you have the money available to pay it back.”
2. Take advantage of 0% installments.
Most stores offer flexible payment options and installments of up to 12 months depending on the credit card you will use. Look out for 0% interest so you won’t have to pay an additional amount (interest) for your purchase.
3. Time your purchase.
Purchasing an item at the right time in the credit cycle can give you extra time to arrange for funds or make your money more productive. For example, if your credit card "resets" every 26th of the month, making a big purchase on the 27th instead can give you an extra month to save up as the purchase will be charged on the next billing cycle.
You can also opt for pay-later schemes where you start paying for your purchases around three months from the purchase date. This way, you can hold on to your money a little longer.
4. Always pay your credit card bill in full.
As mentioned above, paying in installments will be useless if you don't have the money to pay it back. So when your credit card bill comes, make sure to always pay the full amount.
In an article for Smart Parenting, Aneth Ng-Lim, a former consumer education head for a bank, shares that when you don’t pay your balance in full, you will be paying substantial interest. “Cardholders who do so often fall into a debt trap that they find tough to climb out of,” Aneth writes.
5. Don’t pay your credit card bills late.
“If you can't pay on time, you will be slapped a late fee plus interest charges, and between these two, even the most generous credit card perks will not be worth it,” Aneth shares. She suggests settling your credit card bill at least three working days before the due date. “This way, if you paid with a check or used a partner bank or Bayad Center, you can be sure that the credit will go through on time.”
6. Pay off your installments before purchasing more items.
When you buy a TV and you’re paying for it for 12 months, it may be tempting to avail of another expensive gadget because you can also pay for it on an installment basis. All these purchases can add up and if you did not plan for or budget these items, then you may end up in debt.
* This story originally appeared on Smartparenting.com.ph. Minor edits have been made by the Preview.ph editors.