Is buying on account bad? | Pay-off debts | Loan consolidation
Nowadays there are more and more options for buying on account or buying on installment. Buy now, pay later. But can it hurt to make debts?
What is buying on account?
Buying on account means that you purchase a product now, but pay the bill later (in installments). That way you can make a purchase, while the money for this product is not immediately available. That is of course an advantage, but what are the disadvantages of buying on account? Are we encouraged too much to buy on account and what are the risks of making purchases on account. In this article we will discuss the advantages and disadvantages of making debts and which debts (can) be problematic.
The disadvantages of buying on account
Although it is fairly easy nowadays to buy on account and it is even encouraged to do so, account purchases are actually a loan. A payment obligation is entered into and it is important that this obligation can be met to prevent debts and payment arrears. In 2015, the Ministry of Social Affairs conducted a study that showed that one in five Dutch people had problematic debts. That is a shocking amount. Buying on account can facilitate this, so be extra careful and only buy what you can actually pay. Also note that buying on account can be expensive, interest rates of 12 to 15 percent are not exceptional, so buying on account can cost a lot more than you think.
When are debts (from buying on account) problematic?
Debts don’t have to be problematic. When it comes to a one-time forgotten account, there is much less going on than when you are structurally unable to meet your payment obligations. Dave Ramsey, an American economist and debt expert, states that all debts are bad. It does not matter whether it concerns small or large debts. However, this is often slightly more nuanced, it often depends on whether debts are serious or even problematic. It is also important in the Netherlands to look at the nature of the debt: credit card debts are of a different caliber than a rent arrears, for example. It is therefore also important to know which debts have priority over repayments.
Purchase on account and pay off debts
Although it is often suggested that you can best pay off debts from small to large, in practice this is somewhat more complicated. For example, it is very important to look at which debts have priority: the rent, bills with the energy supplier and the health insurance company take precedence over issues such as the telephone bill or credit card debts. This is because the consequences of not paying the rent will be a lot more serious than being excluded from a telephone subscription. After all, there is always the option for a prepaid telephone. It is also smart to look at the interest costs associated with each debt, the costs often accrue monthly and through smart repayment you avoid high costs and get deeper into debt. Do you have serious debts? It is then not advisable to make purchases on account. For help with debts you can always contact Nibud, the AFM and the Municipal Credit Bank. They can help you on your way to a debt-free future for free and without obligation!