We are all familiar with that feeling in your stomach once you know you’ve got to make a big purchase or, even worse, when you get that bill in the mail or notification on your mobile device. Ugh. Maybe it’s from your kid’s daycare or the new furniture you purchased for the living room. Seeing the big number in front of you might get you thinking, how should I pay this off? Well, that’s what we are here to discuss.
Option #1: Plan in advance
If you know your car is going to need new tires at the end of the season, or that the first installment for daycare is due September 1st, or maybe you’d really like a new dining room table before hosting the holidays – plan in advance. Whether you know the exact amount or you have to estimate, you can plan for these large purchases by setting aside money each paycheck as you approach the due date or planned date of purchase so that you can avoid putting the transaction on your credit card. At Radius, we’ve got the perfect tool for you. Goalkeeper, available within online banking and the Radius Mobile app, allows you to plan for a future purchase if you input how much it costs and the date you need to pay it by. You will receive directions on how to save accordingly in order to meet your goal. Deciding to plan and pay upfront will help you be more conscious of the money you have in your account left to spend.
Option #2: Pay-as-you go
In some cases, you may have the option to pay-as-you go – like for a new mobile phone with one of the national carriers. These phones cost upwards of $600 to $1000, and while they are usually paid along with your monthly bill, that is not always the case. If you haven’t upgraded your phone in a few years and are used to a much lower cell phone bill, you will need to budget for this additional expense month after month. Not sure if you can afford to add another expense to your budget? Check out our PFM tools to see if there is some wiggle room.
Option #3: Take advantage of zero interest offers
In other instances, you may be given the option to pay off a larger bill in monthly installments. Instead of seeing a quick $3,000 drop out of your account, over the course of a year, a manageable $250 would be taken out each month. This has its advantages if you actually pay off the amount before the offer ends. If you divide the amount due by the number of months of the zero-interest period, and budget to pay that amount, (or more!) you are golden. But, if you decide to simply pay the minimum amount required, you could be in real trouble when the zero interest period ends and you end up having to pay the interest on the remaining balance for as long as it takes for you to pay it off. Holding off and paying for things you have already purchased over a longer span will add another monthly expense to your plate that might already be too full.
It’s never too early to start planning for that big bill. Whether it’s school payments, daycare or a home addition, taking some money out of your direct deposit and saving it in a separate account is a great trick to get the saving rolling.