4 Scenarios When Monthly Payment Plans Are a Bad Idea

With the economy not looking great, it’s important that you get finances in order to tough out the incoming storm. If you have a limited income like most average people, you need to balance your income with your financial habits to make sure you don’t fall into debt. One of the most common trends these days is monthly payment plans, which in certain instances can end up being bad for you.

Usually, monthly payment plans are a good idea if you have your surplus income to spare. But in a bad economy, buying things on a monthly payment plan might not be the best of ideas. Here are four scenarios when monthly payment plans are a bad idea. If you’re new to managing your own finances, these tips will help you keep your head up in the upcoming global recession that is already in effect.

1.    It Can Encourage Impulsive Spending

Much like credit cards, the biggest fallacy of monthly payment plans is the fact that it often goads you into impulsive spending. Those monthly payments might look small at first, but when you’re paying multiple monthly payments on purchases, it can make a significant dent in your paycheck. This is why it’s always best to make purchases with cash only.

Usually, when inflation hits the market, it also changes the figures on your monthly payments as the price will be adjusted to the inflation as well as the production costs of the current batch in some instances. This makes for a strong argument to make your purchase with a full cash payment whenever possible. 

2.    Purchase Payments May Fail

Aside from impulsive spending, another major reason why you should avoid making purchases on monthly payment plans is that they may fail. Once you miss a payment, you accrue a penalty on the late payment which then adds up to your next immediate payment. There are a lot of reasons why monthly payments may fail despite no fault of your own.

Starting from error in the payment software which is a very common issue that results in your monthly payments missing due date to blocked accounts (both yours or the merchants), card deactivation due to expiration, false flags, incompatible payments, and more, there are a plethora of reasons why your monthly payment installment may fail.

3.    Low Credit Rating

If you have a low credit rating, then monthly payment plans are something you definitely should consider off the table. Also, if you miss monthly installment payments, it also adds up to your low credit rating, making it bad either way if you have a limited income. Furthermore, a low credit rating can also deny you the opportunity to make a purchase on a monthly payment plan in the first place.

There are a lot of disadvantages if you get hit with a low credit score aside from limiting your credit purchase opportunities- you end up paying more on your loans, your insurance premiums usually go up, and have a harder time paying your bills and rent.

The good news is that if you absolutely have to make a purchase on a monthly payment plan but have a bad credit score, then there are companies that offer you cards that allow you to make credit purchases despite the bad score. For example, you can use 500 Credit Score Credit Cards to build up low credit and gain access to a credit line that you can eventually move on from once you have a sufficient credit level for other issuers.

4.    Fixed Fees

If you don’t like the idea of fixed fees then it’s another reason why you should avoid monthly payment plans. The main problem with fixed fees is the fact that the interest rate doesn’t change over the duration of the payment plan. This becomes especially problematic during recessions as the same rates will end up in your paying more than the actual price of the product.

When trying to decide whether to purchase something on credit, always make sure that the payment style is adjustable-style payments. These kinds of payments allow for flexible readjustments that allow you and the merchant to renegotiate the payment and interest rate. This works really well for big purchases.

Understanding Your own Decisions

Now that you have a good idea of when to not go for monthly payments, it should help you plan your finances for the foreseeable economic downturn. As long as you develop sound financial habits, you should find yourself in a reasonably comfortable position financially. This is all the more important if you already have a bad credit score and need to make financially viable decisions.