Key takeaways
- Installment payments for relatively inexpensive items, such as jeans or other clothing, are a new trend, especially when it comes to large e-commerce websites.
- It’s such a popular trend that installment agreements make up 20 percent of checkout totals for these large e-commerce companies.
- One installment agreement for a $50 pair of jeans isn’t a big deal, but when you have several separate installment payments going on at once, it can quickly spiral out of control.
- Since these payments don’t come up immediately, it’s easy to forget about them and not include them in your budget. This could end up putting you in a very uncomfortable financial situation that’s difficult to get out of.
- Take care when purchasing clothing and other smaller ticket items online. Don’t click the installment button for every single purchase. Pay now and avoid pain later.
You may have heard that, supposedly, if you put a frog in a pot with cold water and slowly heat it to boiling, the frog will not jump out of the pan. But, if you throw a frog into water that’s already boiling, it’ll jump out immediately. (Please don’t test this on any poor frogs.) I use this as an analogy because I think of it many times when I hear about this new trend with installment payments.
Installment payments aren’t anything new. In fact, they were around many years ago. Now they’re coming back primarily through e-commerce companies that sell clothing. A large number of young people are taking them up on it. A full 20 percent of all checkout totals at these e-commerce sites are installment agreements. For example, an installment agreement may amount to making payments on a $50 pair of jeans, in which you make four payments over a six week period.
I don’t have an issue with this, per se, but if you’re doing several of these at once, you could be like that frog where all of a sudden you find yourself in a very bad position—boiling water—with no warning because it happened gradually. If you have a number of these payment plans going on at once, you could lose track of your expenses. This type of situation can truly tumble in on itself.
Now, using a debit card is different than using a credit card for these things. With a debit card, you can see the expense building up over time because each payment is immediately taken from your bank account.
In contrast, if you use a credit card for these purchases, the payments are delayed, making it much more difficult to keep track of what’s going on. It’s something to be very wary of. It’s certainly okay to do this now and again, but take care not to click that installment button every time you make a purchase. By taking the installment plan every time, your expenses can spiral way out of control. While paying for those jeans, that shirt, those shoes over time may seem nice, since you don’t see the money leaving right away, it can add up to a very hot—boiling hot—situation, which won’t be nice (or easy) to climb your way out of. Until next time, enjoy.
Gary
