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We often see a lot of 0% interest rates in malls, shops and
more. This is truly eye catching and even more enticing. Simply imagine being
able to have your most coveted smartphone in a jiffy yet you won’t pay it yet.
Instead you will be paying it on a monthly basis. Alas, there’s no need for you
to pay the item in full because you can just pay it monthly for x number of
months. You might exclaim that this is the best way for you to save money. Well
is it?
The 0% interest rates are typically pushed by our credit
card banks. The deduction would be credited to your credit card and the bank
would pay the store and you in turn would pay your credit card bank. Though it
may sound like a no-brainer decision to simply grab this option since you know
for a fact that your credit card can still be able to sustain it however, this
is not simple as you think. Truly the 0% sign up there is enticing and teasing
us to use it. However, let us dissect this to the core.
For instance if you have a credit limit of 50,000 and you
swipe a phone at 48,000 (wow that’s one pretty expensive phone right there)
with 0% interest rate for 12 months, you will be paying 4,000 every month. Not
bad right. Instead of paying 48,000 up front you can just pay instead 4,000
every month.
However, have you considered how much the phone is in other
stores? I remembered swiping my card for a phone at 0% interest. Yes it was a
good catch. However when I inquired other stores just how much my phone is on
the same day, I was stunned how cheap their phones are by a few thousands.
Though they don’t have the 0% interest rate, I could be able to save a few
thousands if I bought it from there and not the other one.
Another thing one need to consider would be the interest.
You might be surprised why we are talking about that here when we say 0%
interest in the first place. Such interest would occur if there’s any balance
outstanding after the period expires. Even more, if you failed to pay it on
time! You will be charged with the interest rate and not to mention the late
charges. This can be as much as 20% or more depending on your card type and
bank. Another thing to take into consideration is that there is no guarantee
that you can shell out that much amount every month. True you might have a
steady job however; this is not only your expenses for the month. There are
months that you would spend more than usual. Can you still be able to allocate
that amount?
Another thing would be your credit score. Credit score is
the mark tagged to your account by your bank. This can affect your credit
offers with regards to interest rates and even loan amounts. The greater your
score is the more reliable you are. However, when you swipe on a 0% interest rate,
this can drag down your score. Let’s go back to the example of swiping the
48,000 phone with a credit limit of 50,000. This could mean you will be left
only with 2,000. Hence your credit card utilization would be from 0% to 50%.
Your bank would take notice and they would think you are attempting to live
beyond your means which is not a good thing to their end.
There is also that enticing minimum amount to be paid in our
bills. Some are so maximizing it that they tend to pay the minimum instead of
the full amount. They don’t see that such also accumulate interest over time.
Oh the horror of those figures. You would end up paying more than the price of
the item!
Low interest rates are the companies’ way of saying that
borrowing is more attractive than saving. If you have bigger purchases, this
can be a good tool to trim down your payments. You can be able to maximize the
potential of the 0% interest provided that you have the discipline to pay it in
full and on time. Just be very careful to avoid the pitfalls stated above. And
for sure, you will be one smart and happy shopper in the end.
*Article submitted as guest post to http://burngutierrez.com/
P.S. To those doing the 52 Week Money Challenge and 52 Week Money Challenge Version 2, it is Week 14 already! Did you deposit the next amount yet?
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