Those of us who have a credit card have been in the same situation at some point: we arrive at the cashier and when they pass the card they ask us how many fees we want to defer our purchase. They said that whenever we went to a fee we would not pay interest and that this would be the ideal term, but how can we be sure that this is the case?
Myths and realities of paying a fee
Let’s start with something that most of us can agree on: deferring our purchases to a fee is ideal because they don’t generate interest . In fact, if we also know the difference between the cut-off date and the payment date of our credit cards, we could defer our purchases to a fee and pay them up to 45 days also free of interest.
Among the most common reasons to pay a fee our purchases with the credit card is the fact of earning points, kilometers or miles without paying more for our consumption; However, we have reviewed before to what extent this strategy can become more a myth than a benefit.
Now, if we have no greater expectation what we can earn in points for deferring a purchase at a fee and the only benefit we expect will be not to pay interest, there would only be one reason – financially speaking – to pay with our card Credit and not with cash (or debit card):
The money we were going to use paying for that purchase can be used in something else. In doing so, we will receive some kind of profit or benefit in the next month and we will have it back to pay the credit card statement on the payment date.
Unfortunately, it is common that instead of using the money on something that guarantees that we will have to pay it back credit card and make a profit by using it in that month, end up spending on something different. In this case, the only thing we will do is make our self of the following month pay with money from that month a consumption of the past (which we had to pay with our cash).
Is it okay to pay several installments?
Like many things in personal finance, it is neither good nor bad. It all depends on the level of awareness with which we make our purchase and the expectations we have of enjoying it.
Why would someone pay a credit card purchase in several installments?
There are basically two reasons why a person may consider deferring purchases with their credit cards to several installments:
- You want or need a product or service, you don’t have the money to pay with cash and you can’t wait to save it to buy it.
- Paying the product or service with cash would mean running out of money to meet other obligations, so you prefer to pay it in several installments and not affect its liquidity in the short term.
What is the logic behind choosing the number of fees to defer a purchase?
Deferring to several installments a purchase allows us to make small monthly payments that reduce the risk of running out of money in a month. In this sense, the more fees I choose, the lower the payments I have to make monthly and the greater the cash flow I have month to month.
However, we must not forget that in the case of a credit card, fees are only one element of all that we have to consider when buying. The second key element is the interest rate ; The third is the durability of the good or the service we are buying.
When we have these three elements present we can have enough information to make the best decision. The principles that we should follow at this point would be:
- A product or service should not be paid in a longer time than it takes us to enjoy it or consume it.
- Choosing more installments decreases the value we pay for each installment, but also increases the value we pay for interest. There are a number of fees after which the credit becomes more expensive than the fee decreases; That will be the number of limit fees that we should keep in mind. Beyond this, there are very few reasons – financially speaking – to defer a purchase.
Steps to choose the number of installments in a purchase
With all the above clear, we recommend the following steps to know how many installments you should defer your purchases:
- If it is a product or service that you will consume in less than a month (market, food, party, public transport, etc.), pay it with cash.
- If you want to earn your credit card points by paying a fee, be sure to save the money you would have used that same month if you did not have your credit card. Otherwise, you’re doing your self of next month have to descompletar your income to cover your past consumption.
- If you don’t earn points for your credit card purchases, you have the money to buy the good or the service without having to pass your credit card, and you have nothing better to do with that money in a month, pay your purchase with that Money and save the credit card.
- If you are going to defer it to installments, ask yourself what is your expectation of the useful life of the product or service that you are going to acquire. For example, if you buy clothes, you could expect to use it for at least a year; If you buy a TV, you could wait to have it for at least three years.
- Keep in mind the amount of credit you need and the interest rate charged on your credit card. At this point, if you are going to buy all the appliances in your home, you could prefer a free investment credit and not your card.
- Make a quick account of the interest you would end up paying for deferring your purchase to the number of fees you are thinking (below you will find a calculator that does just that).
- Ask yourself if you are willing to bear that cost for the item you are about to buy. In other words, if the benefit of having it now and paying it in installments with interest is greater than the value of the latter.
- Make a decision!
Interest calculator in payment of installments by credit card
If you want to quickly calculate how much you will pay interest for a purchase with your credit card we recommend the calculator that you can find in the following button