There are a few activities most Americans partake in: watching sporting events, listening to music, and paying interest to credit card companies.
No one likes paying bills, but it’s part of using a credit card. Neglecting those bills enables small debts to compound, causing exponential debt growth. Too much credit card debt can deteriorate your financial health, negatively impacting your credit score and affecting your ability to qualify for new loans and credit cards in the future.
To wrangle debt, many are exploring alternative financial debt solutions like Buy Now, Pay Later (BNPL) options to avoid accumulating too many expenses. According to a GlobalData report, the popularity of BNPL solutions has jumped from $33 billion in 2019 to $120 billion in 2021, with the total transaction value set to reach $576 billion by 2026.
Unfortunately, BNPL plays into the instant gratification mindset of many consumers today by allowing them to buy things they cannot afford and enabling them to put off paying. When cardholders opt to finance essentials, it becomes challenging to budget and stay on top of payments and fees. As more in-person shopping options make it easy to use BNPL, there is an even higher risk of falling behind on payments.
So how should consumers navigate their debt payments with fewer risks?
Asaf Darash, CEO of Regpack, an innovative payments platform known for maximum security and malleability, suggests another way: pay in installments.
Understanding Credit Card Installment Plans
Credit card installment plans can be a great way to finance large purchases for a low cost, especially if you choose a structure that works with your spending habits. Most installment plans follow the general Buy now, Pay later concept: They allow you to make a large purchase and make the complete payment at a later time—only with installments split over a few months or even years instead of a single lump-sum payment.
The payment for the credit card installment plan is typically added to your card’s minimum monthly payment until the installment plan is paid in full. When you see that a purchase is eligible for an installment plan, you can request a plan and learn about the repayment details before committing to the plan.
Throughout Europe and other parts of the world, such as Darash’s native country Israel, buyers are frequently given the option to pay in installments. This means that the company you bought from agrees to get the money chunk by chunk, and you will also pay for it chunk by chunk. For example, credit cards are Turkey’s most popular payment method, with many national banks offering their own credit card systems. And an estimated 55% of all card transactions are made up of bank repayment installments.
Darash’s own company, Regpack, has developed a highly flexible billing platform based on his post-doctoral research. His software enables the creation of IT systems with no constants, resulting in creative payments solutions to help businesses meet their customers’ needs and differentiate themselves. The platform allows users to set their own payment terms and, in the process, has upped the revenue of businesses by an average of 32%.
“Paying in installments actually shifts the burden back to the businesses, so it’s a better deal for consumers,” Darash explains. “It gives buyers more agency in their financial lives and allows them to set the terms for how they want to use their spending power. It is also a win for businesses as their revenue grows by a third year over year when implementing the technology.”
The best time to use a credit card installment plan is if you have high-interest cards and know you can remain diligent about making planned payments. This approach will actually help you come out ahead because your debt has an end date. Of course, making purchases outright without financing is the most cost-effective method, but if you have a good reason for financing a large purchase instead of waiting to save up the money and you don’t make a habit of large purchases, installment plans are a smart method for staving off compounding debt.
While most credit card installment plans are beneficial to buyers, it’s still important to look at the terms of the offer and determine whether or not it will save you money. It’s important to note that some installment plans charge a set interest rate, and others are designed to sidestep interest with a small fixed fee. Whether this fee falls on the consumer or the merchant varies by payment program.
Lastly, before signing on to an installment plan, be sure your budget can handle the additional monthly obligation. The last thing you want to do is miss a payment or not pay the balance in full over the payment period, negatively impacting your credit health and causing you to incur late fees and other expenses.
Credit card installment plans are a great method for getting and staying out of debt while still getting the products you need—even the expensive ones—in a timely manner.
