Deferred Billing Options Can Lead to Financial Trouble
By: Gerri L. Elder
During the holiday shopping season, retailers dramatically step up their marketing efforts. One thing that consumers may notice in the bulk of holiday catalogs is the option of deferred billing.
Retailers have found that by allowing their customers the option to delay billing, sometimes for several months, they see an increase in sales.
Generally, businesses that offer deferred billing options allow the consumer to order and receive merchandise but don't apply the charges to the consumer's credit card until some date in the future. During this time, no finance or interest charges are accrued.
Consumers should beware of taking advantage of too many deferred billing offers, as this money inevitably comes due at some point down the road. Although it seems like interest-free shopping, if the balance of the purchases is not paid when the billing is applied, interest will start to build up.
By overspending when deferred billing options are available, consumers can rack up unmanageable debts that can lead to dire financial problems and even bankruptcy when the bills come due.
It is important to keep in mind that while it may seem convenient, deferred billing is a sales tool used by retailers to pump up sales. If it didn't work, companies wouldn't use it. Deferred billing is big business for retailers, but can add up to financial harm when overused by consumers.
Consumers who wish to take advantage of deferred billing options should keep detailed and accurate records about their purchases and notate when the billing will occur. If taking advantage of more than one deferred billing option offer, also make sure that there will be cash available to cover the charges when they are due. Otherwise, these deferred billing purchases will accrue interest.
When companies offer deferred billing on their own store credit cards, they are banking on you not being able to pay the bill when it's due. If you forget that you have chosen a deferred billing option and then suddenly find that months later you are socked with a huge bill, this can cause stress about how to pay a bill for which you have not budgeted.
If you cannot pay the balance and only pay the minimum payment on these purchases, the store adds interest to the balance each month until it is paid off. This means that the seemingly free, harmless and "attractive" deferred billing option can cost you plenty.
When deferred billing is applied to a major credit card, the interest rate of that card will apply to the purchases if the balance is not paid. While the store does not profit from the interest in this scenario, the consumer can still rack up debt.
The commonsense rule of thumb for consumers is to not spend more than your budget allows. In these troubled financial times, with business bankruptcies and mass layoffs in the news each day, who knows what the future may hold for your finances?
Deferred billing may seem like an attractive option but consumers should always keep in mind that if they cannot afford something now, chances are that the cash may not be available when the bill comes later.