Do you usually resort to credit card installments? With card revolving interest at 333.9% a year, the supposed ease of solving consumer problems with installment payments thanks to plastic money can complicate consumers’ lives irreversibly. A 2017 survey by Protest found that the rates charged by the national credit card companies are the highest on the planet, reaching 830% per year!
Worse, there are still countless other silent problems that echo in the financial lives of those who indulge in this corner of the market mermaid. In today’s post, you’ll find out why you need to abandon credit card installment, taking the opportunity to learn about the actions you need to reorganize your purchasing decisions strategically. Keep up!
Financial Problems Caused by Credit Card Misuse
Embedded interest payment
Currently, the most popular type of card purchase is interest-free installment, which accounts for 55% of all purchases made through this means. The problem is that this apparent ease offered by the shopkeeper is not free.
The merchant who sells an interest-free install on the card also receives from the administrator the amount of the sale in monthly installments, and the first shipment is only made after 30 days.
Consider: Given the knowledge that most purchases made by companies from their suppliers are also split, how will merchants be able to pay off their debts in the short term by selling much of their products through credit card installments? The solution is to embed interest into the final price itself.
Yes, most of the goods sold in the market already have a built-in interest percentage, intended to cover any purchases in installments on the card. That is why those who pay cash, always get a good discount. Thus, in addition to the card machine administration fee, you also circumvent the built-in interest.
Uncontrolled Personal Finances
A survey by SPC Brazil showed that 58% of Brazilians do not devote any time to systematizing their domestic budget. It is unclear, therefore, how much was spent in the month, what are the total income and, mainly, which payments are still outstanding.
Add to this level of clutter the forward purchases made at different times with different amounts and different installments. What do you think will be the result? Believe me: 62.2% of the indebted population.
When we buy with a credit card, we have the illusory feeling that we have softened the financial burden and been able to fulfill our desire for consumption.
However, those who think this way forget that many months from now, when the product may have already been damaged or consumed, there will still be plots compromising their budget, preventing it from growing financially and especially wrapping it with the extensive list of remaining payments. . .
Payment for purchases that no longer exist
By the way, it is worth highlighting this issue of the ephemerality of consumption. You go to the grocery store, make a purchase full of unnecessary items, spend more than you earn monthly, and at the cashier, resort to credit card installments several times.
The problem is that now satisfaction will hurt your life tomorrow. 2 months later, you will have to return to the grocery store, but you will probably have no more limit available, since all purchases have been made in installments or at a minimum payment. And the worst thing to remember is that this commitment was made to pay for items that no longer exist!
Snowball effect by accrued interest
Prior to the new card financing rules, it was possible to make a purchase of $ 10,000 and pay the minimum every month. The point is that if you did that, you would soon have a debt of over $ 30,000.
With the new card revolving rules, which came into force in April 2017, this system of stimulating debt was made difficult.
Now the consumer can only make the minimum payment of 15% of the invoice and for just one month. In the second, the customer has only 2 options: pay the cash invoice or resort to the installment of the credit card with interest.
But note that in both the old and new scenarios, it is very easy to curl up with the card. One must therefore be aware of even the interest-free installment, as it only takes a few purchases to make your debts turn into a snowball.
Cash changes in credit line rules
In addition to the new minimum payment rules, we are on the verge of seeing the consumer siege close even further with respect to installment purchases.
The Savefast Bank is considering a request from the Brazilian Association of Card Companies (Abecs) to end the installation of the interest-free credit card, which would be replaced by a form of interest-bearing credit.
In this model, instead of waiting 30 days to receive the first installment, the retailer would receive the cash purchase amount within 5 days. If this becomes a rule, consumers should have even more incentives to change their relationship with the card.
Financial organization tips to secure card payment
Systematize Your Home Budget
To get started, put all your income and expenses in a spreadsheet or app. And believe me, this simple act can already reduce your expenses a little. This is because there are many financial leaks that are only noticed with this materialization.
Make a task force to pay off card debt
You can turn to friends for an interest-free loan and then pay off all card debts – the amount of which grows exponentially with monthly interest rates.
If you have no acquaintances at this level of intimacy, an alternative is to exchange the more expensive (card) debt for a cheaper one.
The loan with vehicle guarantee, for example, is a little known modality in the country that, because it brings more security to institutions, has lower interest rates.
Change your financial future by changing your mindset
The possibility of being satisfied today and bearing the burden tomorrow is steeped in national culture. But the first step in getting your financial life moving forward is to change that way of thinking by buying as a post-savings act.
Want to buy a car? Set aside a percentage of your salary every month and wait to add the cash amount to make the purchase. This will earn you two times: first, for evading interest, and second, for discounts on one-off payments.
Make an investment
We have reached the most advanced stage of the financial evolution process. Have you paid off your card debts, already permanently aborted the payments in installments, already acquired the habit of systematizing your household budget? Then it is already possible to separate part of your salary to make an investment!
At this point, we move from debt relief to capital accumulation. You can do this by applying for a private pension, hiring life insurance or other financial protections and long-term investments. Realized how bad credit card installments can be for your finances? So subscribe to our newsletter and keep improving your level of financial education!