04/08/2014
BUYING ON CREDIT VERSUS PAYING CASH
Any transaction ,whether for foods or services ,is called a Credit Transactions when payment is received immediately an dis delayed for a set period of time.There is usually a charge for this delayed payment or sometimes for what a discount for early payment.
Any transaction ,whether for goods or services ,is called Cash Transactions when payment is made immediately for what is owed and there is no penalty or extra charges.
If we at the above explanations,it is clear that Credit Transactions is more expensive then making cash payments for the same item .We tend to buy things on credit when we do not immediately have the cash on hand.This however ,can become a very expensive practice.
Credit is often called "a promise to pay" out of further earnings .Therefore ,delaying payment of any goods or services always come at a price. This is usually in the form of interest and other charges placed on the account by the Credit Provider.We are often blinded by our need to have the item in question now and then make decisions with our hearts instead of our heads and this can lead to a spiral of debt.We keep buying on credit until all our income and future income is used to pay our debt.
It is important ,that when you make the decision to buy on credit ,you are willing to pay all those extra charges.
lets look at a simple example
I buy a new pair of shoes on Credit for R500.00 to be paid off over 3months.this is what you are paying for your shoes ;
ORIGINAL PRICE - R500.00
INTEREST @ 22.10 %
OVER 3 MONTHS - R110.50
INITIATION FEE - R150.00
SERVICE FEE - R150.00
TOTAL : R910.50
Different purchases on credit are charged different rates .Did you know that in general ,loans below R8000.00 are charged at 5.00% and clothing accounts vary between 18.00% and 22.10%.
Some credit can assist by creating wealth .By this ,I mean that it will increase in value after purchase ,for example -fixed property .Buying a house will usually increase in value,provided of course that you can maintain your installments on this credit facility.
Cash should therefore always be used when buying things like food,clothing and other perishables as their value will never increase.
Make sure therefore ,before swiping those little plastic cards ,that you can really afford to pay back all those finance charges and avoid being caught up in a situation were your salary does not cover all of your debt.
Should you however ,already be in a position where your salary cannot stretch far enough.contact a debt counselor for assistance in restructuring your debt.
BB CONSUMER CARE !
