Beware of predetermined credit cards

False Prosperity is having lots of “things” that you still owe money on.

Pre determined revolving credit loans that are offered by some stores have the ability to add large purchases such as interest free deals as well as being able to add smaller purchases such as shoes, baby clothes etc. These types of loans can be a bit confusing to work out what your regular payment is being credited to.  Many times customers are encouraged to set up a payment by direct debit so you make sure your account is getting paid and you don’t have to worry about it.

What I found quite by accident while helping a friend of mine with her Sharing, Spending and Savings Plan shocked both her and me. I urge you if you have these type of credit facilities that you find out exactly what your payment is being credited to especially if you are paying using something the store may call “easy pay” which is just another term for direct debit.

On her store credit account she had put different items ranging from a pair of shoes purchased for $15.10, baby clothing purchased for $44.00 through to some furniture at $1677.90 interest free for 12 months. Her overall outstanding balance of her account was around $2,400.00. She was paying $20.00 per week by what the company called “easy pay”.   What I expected to see was because she had paid $20.00 that week that the shoes she had put on the account for $15.10 were paid off and the next smallest bill would have had the remainder of that payment added to it and so reduced what she owed for the baby clothing. However what was happening was a percentage of her payment of $20.00 was divided over everything she owed. The shoes she had bought for $15.10 were having a payment of 11 cents made to them each time she made a payment and she was being charged 19.90% per annum interest for those shoes as well. The information “behind the scenes” on her account showed that the shoes she had purchased in March 2008 would not be paid off until March 2016 – that is 8 years after she bought them.

When she requested that her payments were credited against the smallest amounts first she was told that the computer system did not have the ability to do that. The amount she paid could only be divided over all the things she owed money on. The only thing she could do was either go in and pay the account in cash or by online banking herself and give them a particular invoice number to pay off.

So, if you have an account like this and are paying by direct debit check that it is not going to take you 8 years to pay off a pair of shoes worth $15.10 when you are paying $20.00 per week as an overall payment

Sylvia's new book parents How to stop your kids from going broke is now available. Contact Sylvia at Silbo Systems