A common way people get into more debt than they can handle is by
falling prey to tricky marketing tactics, which cause them to
owe more than they bargained for.
Let us use an example of ?Zero Percent
Interest until July 2008? for an item purchased
in July 2007. Many people purchase expensive items under these
conditions, believing they get the item virtually ?free?
for 12 months, and can then start making payments in July 2008.
Note the offer carefully. The borrower is usually required to make
at least minimum payments throughout the ?no interest? period;
and while it may be true that no interest is attached to that minimum
payment, interest charges will accrue for that entire 12 months. In
July 2008, if the bill is not paid in full, the balance due or total
debt will be for the cost of the item plus 12 months worth of ?deferred
finance charges?; on top of which more interest will accrue.
The same holds true for ?No Payments Until?
offers. No payments are due, but if the debt is not paid off entirely
by the ?until? date, all of the accumulated interest will
then be added to the amount due, and additional interest will accrue
on the total balance. People will often purchase items under these conditions
with the mindset that they have ?x months? to come up with
the money. It may seem manageable at the time of purchase, but without
a dedicated pay off plan during the offer period, borrowers may find
themselves with a hefty balance owed at the end of the offer period.
Take the example of a couple that purchases a new couch for $1300 on
a 12-month ?no payments? offer. They could expect interest
rates in excess of 20% through the store financing and therefore should
anticipate interest due of $250 or more by the end of the 12-month period.
Unless the $1300 is paid off before the due date, the debt balance will
become $1550 instead of the original $1300. On top of that, the 20%
interest will now be charged on any outstanding monthly balance.
The only way to ?truly? have zero percent interest on either
offer, would be to pay off the item completely before the ?until?
date, but it is still a risk that should be carefully considered if
not altogether avoided.
About the Author:
Marie Spaulding is the founder of Debt Pay Off Plan. Through the use
of it's debt pay off calculator and custom month-by-month payment
plans, the company helps people strategically get out of debt, cut years
off their payments and save thousands of dollars that would otherwise
go to banks in interest payments.
http://www.debtpayoffplan.com
