Manila, Philippines

Maximum Credit Card 0% Installment: Three Months

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Years ago, I promoted the use of 0% installments of credit cards as a way to improve our cash flows, I still believe it has financial benefits to the informed and disciplined customer.

Or augment the temporary lack of it. I still do promote it now.

I’d like to provide a few qualifiers though as an advocate of financial literacy and personal finance.

Cash is King

Bo Sanchez and RFP would say buy items using cash, as much as possible. If you can afford buying it in cash, then why not? It also has a psychological impact where you feel that indeed your money was lessened because of the purchase, as if you were losing blood as you pay. Haha!

Which you may not necessarily feel when buying using a card (buy now pay later leverage), much more card installment right? Also, they would say if you can’t afford to pay it in cash, then don’t buy it.

One More Chance for Installments

How about a middle ground? I’d say if you’re really bent on purchasing on installment, don’t drag it to 12 months or 24 months. I’d say buy it on a 3-month installment or 6 months, tops. If you can’t avoid such a short term, then don’t buy it. It means you can’t afford it. Again, just to qualify, I’m just referring to credit card purchases such as gadgets, appliances etc. Of course a car or a house will definitely have to be loaned (bless you if your credit card limit can buy a car).

Personal Experience

I bought an android phone last Jul2012 and then LED TV last Dec2012, both on 0% installments, 12-month tenors. Modesty aside, I can meet the monthly payments anyway without revolving (partial payment). But then again, 3 months into repaying my cellphone, I already want a new one (not even halfway through the installment!) As for the TV, repayment just started this Mar2013 so I will have to service that installment until Feb2014. Ang tagal pa! And yet, the excitement of the new TV has already wore off as early as Jan2013.

In short, repayments have become a drag. Besides, tendency is to forget these existing installments so we tend to buy new items, again on installment. There was a time I had six (6) 0% installments at the same time (started in different months but eventually overlapped). Repayments were such a nightmare and so dragging, and the happiness and high and excitements brought by the purchased items were really very temporary (though they are still useful until now).

I’m contemplating pre-terminating the installments and paying them in full soon, but that will be subject to certain bank fees.

Yes, buy on installment if you must, but don’t stretch it for long. They say make the repayments small enough so that you won’t feel it. Yes you won’t feel it so you end up buying more. I’d say make the tenor short enough so you feel the repayments draining your budget. That way you don’t get tempted to buy more items.

P.S. Sold my old cellphone and repaid my card installment (paid the whole amount to my card and left my card at home — it will just get deducted as amortizations become due). Then bought a better one, but this time on 3-month installment only. And it hurts, for the better. As for the TV, I’ll just watch more TV and HD movies this Holy Week.

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 Filipino Personal Finance

5 Responses

  1. vishnu sofey says:

    Are your kredittkort debts keeping you awake at night? If so you are one of millions of people that are experiencing this same nightmare. Almost everyone has credit card debt in today’s world.yaa its really a nice blog.

  2. pen_name says:

    Thanks Anonymous for comments. Yes, agree that a well maintained card improves your credit score in case you apply for loans in the future.

    Key words here are well maintained.

  3. Anonymous says:

    I only use my cards in buying whether straight or 0% if I have enough cash in my bank or if there will be incoming cash for the next months to pay for my cards' bills.
    Of course, if the merchant doesn't accepts card or if the cash price is cheaper, then I use cash.
    The reason behind here is that, I want to have a good credit score record from the bank. So, that if I apply for a loan in the future, I will get approved easily. Not only that, there are also rewards or perks in using the card. But don't be misled by these perks, some of them are goats in sheep's clothing. The best reward the you can get from cards is the reward of discipline and for being responsible card user.

  4. Carlos says:

    Yeah, I totally agree. I learned the same lesson when I bought a phone with my credit card. It was great the first few months, and then the new-toy feeling wore off and I was stuck with good-size monthly payment.

    I think either way you suffer a bit. Cash flow is an important part of budgeting. Restricting it can cause problems when opportunities or emergencies arise in the future. But, as you said, even a too-low monthly payment can cause problems for an undisciplined spender.

  5. pen_name says:

    Yes Carlos. With great (credit) power comes great (credit) responsibility, and worse payables. Haha. I guess humans really just prefer to learn the hard way especially Pinoys. All we can do is share our own humble opinions.

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