Monthly Payments Can Keep You Poor!

Monthly Payments

In the modern era of convenience and instant gratification, the allure of “Monthly Payments” schemes seems too good to resist. From gadgets to luxury cars, the market is flooded with easy monthly payment options that promise to make your dreams come true, without burning a hole in your pocket. But is it all as rosy as it seems? Let’s uncover the dark secrets that lie beneath the surface of monthly payments.

None of us are immune to the powers of miracle marketers, who will stop at nothing to separate us from our cash. And if you desire financial independence, or are already on your journey, you need to be intentional about how you see value in all things, in particular your hard-earned money and what it can and cannot do to bring you joy.

Monthly payments can quickly put you in a hole, creating additional challenges to reach your desired financial goals. I’m not advocating you avoid monthly payments at all costs. I’m simply advocating that you truly understand what those costs are in order to make a smart financial decision without negatively impacting your quality of life.

Understanding Monthly Payments

Before we venture further, it’s essential to understand what “Monthly Payments” entail. Monthly payments are a financial arrangement where you pay a fraction of the total amount owed, usually on a monthly basis, until the debt is paid off. This method can apply to loans, mortgages, or purchase plans.

How are Monthly Payments Calculated?

  • Principal Amount: The initial amount of the loan or the price of the item you are purchasing.
  • Interest Rate: The percentage of the principal amount that is charged as interest.
  • Loan Term: The duration over which the loan will be repaid.

The monthly payment can be calculated using the formula: nope, I’m not going to put the formula here because you don’t really need to memorize a formula. There are many online calculators available. Here are a few links in the next two paragraphs. 

Monthly Payment Interest Calculator

There are numerous online tools available that can help you calculate the monthly payment with interest, such as a Monthly Payment Interest Calculator. These calculators require you to input the principal amount, interest rate, and loan term to determine your monthly payment.

Monthly Payment Compound Interest Calculator

A Monthly Payment Compound Interest Calculator takes it a step further by including the compound interest in the calculation. Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

The Dark Side of Monthly Payments

Buy Now Pay Later

Buy Now, Pay Later has become so commonplace there are even a number of apps being shoved in the face of consumers. This doesn’t need to be your normal way of purchasing items for your lifestyle.

Pros and Cons of Buy Now and Pay Later Plans

In recent years, “Buy Now and Pay Later” (BNPL) plans have surged in popularity, offering a seemingly convenient solution for consumers to acquire goods and services without immediate financial commitments. However, like a coin with two sides, these plans come with both advantages and disadvantages. Here are the pros and cons of BNPL plans to help you make an informed decision:


  • Immediate Possession of the Item
    • Gratification: BNPL plans allow you to enjoy the satisfaction of owning or using the item immediately, without having to wait until you have saved up enough money.
    • Emergency Purchases: In cases of emergencies, these plans can come in handy, enabling you to make necessary purchases without delay.
  • Can Facilitate the Purchase of Necessities
    • Accessibility: For many, BNPL plans can provide a means to acquire essential items, such as appliances or furniture, which might otherwise be financially out of reach.
    • Budget Management: These plans can sometimes assist in better budget management, allowing you to spread the cost of a necessary purchase over several months, making it more manageable.


  • Can Lead to Impulsive Buying
    • Overconsumption: The ease of acquiring items through BNPL plans can often lead to impulsive buying, where individuals purchase items they don’t truly need, leading to overconsumption and potential financial strain.
    • Psychological Stress: The accumulation of numerous small debts can create a constant source of stress and anxiety, as individuals struggle to keep up with various payment schedules.
  • High Interest Rates and Hidden Fees
    • Increased Costs: Many BNPL plans come with high interest rates and hidden fees, which can significantly inflate the cost of the purchased items, making them much more expensive in the long run.
    • Deceptive Marketing: Some BNPL services use deceptive marketing tactics, hiding the true cost of the service and luring consumers into a cycle of debt with the promise of “interest-free” periods that may not be as beneficial as they seem.
  • Potential Negative Impact on Credit Score
    • Credit Score Damage: Missing payments or defaulting on a BNPL plan can have a detrimental effect on your credit score, making it more difficult to secure loans or credit in the future.
    • Debt Accumulation: The ease of using BNPL plans can sometimes lead to the accumulation of multiple debts, which can spiral out of control, potentially leading to serious financial difficulties.
  • Encourages a Culture of Debt
    • Normalizing Debt: BNPL plans can contribute to the normalization of debt, encouraging individuals to live beyond their means and fostering a culture where accruing debt is seen as standard practice.
    • Financial Instability: In the long run, reliance on BNPL plans can lead to financial instability, as individuals find themselves caught in a cycle of debt, with a significant portion of their income going towards servicing these debts.

While BNPL plans offer the allure of convenience and immediate gratification, they come with significant downsides that can potentially lead to financial hardship and stress. It’s essential to approach these plans with caution, fully understanding the terms and potential pitfalls before committing to a purchase. Remember, a well-informed consumer is a protected consumer.

What are the Most Common Purchases People Use Monthly Payment Plans For?

In the contemporary consumer market, monthly payment plans have become a prevalent method to acquire various goods and services without paying the full price upfront. This seemingly attractive option has found its way into numerous sectors, encouraging people to buy now and worry about the payments later. Here, we delve into the most common purchases people often make using monthly payment plans:

  • Electronics
    • Smartphones and Tablets: With the rapid advancements in technology, new models with enhanced features are constantly hitting the market. People often resort to monthly payment plans to upgrade to the latest devices without feeling the immediate financial pinch.
    • Laptops and PCs: High-end computers and laptops can be quite expensive. Monthly payment plans make it easier for individuals to own these devices for work or personal use, spreading the cost over a period of time.
  • Furniture
    • Living Room Sets: Furnishing a living room with luxurious sofas, recliners, and entertainment units can be a costly affair. Monthly payment plans allow individuals to decorate their living spaces with premium furniture without breaking the bank.
    • Bedroom Furniture: From king-sized beds to elaborate wardrobe setups, bedroom furniture can be acquired through easy installment plans, making the process of setting up a comfortable sleeping space less financially daunting.
  • Vehicles
    • Cars: Whether it’s a brand-new car or a used one, vehicles are one of the most common purchases made through monthly payment plans. These plans can sometimes include additional services and warranties, adding to the appeal.
    • Motorcycles and Bikes: Similar to cars, two-wheelers are also frequently bought using monthly payment plans, making it easier for enthusiasts and commuters to own a personal mode of transportation without a hefty upfront payment.
  • Luxury Items
    • Jewelry: Precious metals and gemstones often come with a hefty price tag. Monthly payment plans enable individuals to own exquisite pieces of jewelry, paying for them in smaller, manageable installments.
    • Designer Clothing and Accessories: High-end fashion items, including designer handbags, shoes, and clothing, are now within reach for many, thanks to the availability of monthly payment plans. These plans allow fashion aficionados to flaunt the latest trends without worrying about the immediate financial implications.
  • Home Appliances
    • Refrigerators and Washing Machines: Essential home appliances like refrigerators and washing machines can be significant investments. Monthly payment plans ease the financial burden, allowing households to enjoy the conveniences these appliances offer without straining their budgets.
    • Air Conditioners and Heating Systems: Installing or upgrading home climate control systems can be facilitated through monthly payment plans, making it easier to afford comfort and luxury in one’s home.
  • Vacations and Travel Packages
    • Holiday Packages: Many travel agencies now offer the option to pay for holiday packages through monthly installments, making it easier for individuals and families to plan and enjoy vacations without the financial stress.
    • Cruise Trips: Luxury cruise trips, which were once considered the privilege of the affluent, are now accessible to a broader audience through monthly payment plans, allowing more people to experience the joy of sailing the high seas.

By understanding the common purchases people make using monthly payment plans, one can better navigate the potential pitfalls and make informed decisions about when and how to utilize these payment options.

When Does it Make Sense to Use Monthly Payments?

In the labyrinth of consumer finance, monthly payments can sometimes appear as a beacon of light, offering a pathway to acquire what you need or desire without the immediate financial burden. However, it’s crucial to tread this path with caution and discernment. Here, we explore the scenarios where opting for monthly payments can be a sensible choice:

  • When the Interest Rate is Low or Zero
    • Promotional Offers: Many retailers and financial institutions offer promotional periods where you can make purchases with zero or very low interest. These offers can be a golden opportunity to make a necessary purchase without incurring additional costs.
    • Building Credit Score: If managed wisely, utilizing low or zero interest monthly payment plans can help in building or improving your credit score, which can be beneficial for your financial future.
  • Purchasing a Necessity
    • Housing: When it comes to buying a home, very few people can afford to pay the entire amount upfront. In such cases, opting for a mortgage with reasonable monthly payments is not only sensible but often the only viable option.
    • Vehicles: A reasonably priced vehicle can be a necessity, especially if your livelihood or daily life depends on it. Monthly payments can facilitate this purchase, enabling you to meet your transportation needs without crippling your finances.
  • Well-Planned Budget and Stable Income
    • Financial Stability: If you have a stable income that comfortably covers all your monthly expenses, including potential monthly payments, it can be a sensible option. It allows you to manage your finances without overstretching your budget.
    • Emergency Situations: Sometimes, emergencies necessitate immediate purchases. If you have a well-planned budget, you can accommodate these unexpected expenses through monthly payments without spiraling into debt.
  • Investment Opportunities
    • Asset Appreciation: In cases where the purchased item is expected to appreciate in value over time, such as real estate or certain types of vehicles, opting for monthly payments can be a strategic move.
    • Business Investments: Entrepreneurs often need to invest in equipment or technology to grow their business. If the monthly payments are aligned with the projected returns on investment, it can be a sensible choice to fuel business growth.
  • Educational Pursuits
    • Higher Education: Pursuing higher education can be a significant investment in your future. Monthly payment plans can make it possible to afford quality education, potentially leading to better career opportunities and financial growth in the long run.
    • Professional Development Courses: Many professionals opt for courses to enhance their skills and knowledge. Monthly payments can facilitate this without putting a strain on your finances.
    • If you are a parent, do not pay for your child’s college education without considering the many other options.
  • Healthcare Needs
    • Medical Procedures and Treatments: Necessary medical procedures and treatments can sometimes be quite expensive. Monthly payment plans can make it feasible to afford the healthcare you need without delay.
    • Health Insurance Premiums: Paying for health insurance premiums through monthly installments can ensure that you have the necessary coverage without impacting your monthly budget adversely.

While the world of monthly payments is fraught with potential pitfalls, there are scenarios where it can be a sensible and strategic choice. The key lies in careful consideration, thorough planning, and a deep understanding of your financial landscape.

Monthly Payment Questions to Consider

Is Monthly Payments a Good Idea?

While monthly payments can sometimes facilitate necessary purchases, they often encourage impulsive buying and can lead to a cycle of debt. The high interest rates and hidden fees can make these purchases much more expensive in the long run.

How Do You Buy Something in Monthly Payments?

Buying something in monthly payments usually involves:

  1. Choosing a monthly payment plan at the time of purchase.
  2. Agreeing to the terms and conditions, including the interest rate and payment schedule.
  3. Making regular monthly payments until the debt is paid off.

Why Do Some People Choose to Pay by Installment?

People choose to pay by installment due to:

  • Lack of upfront funds
  • The allure of owning the item immediately
  • Misunderstanding the true cost of interest and fees

Is it Better to Make Monthly Payments or Pay in Full?

Paying in full is generally better as it helps to avoid interest charges and potential debt accumulation. It encourages financial discipline and prevents the negative impacts associated with missed payments.

A Monthly Payment Comparison for Buying a Car

I think we can agree that there are some clear examples of when not to use monthly payments. However, there are more common examples, like purchasing a car, where we may think, because it is so commonplace, that making monthly payments is just the way to do it. When considering taking on the burden of monthly payments vs paying outright, it is prudent to focus on the actual value the item brings into our lives. In this comparison, we’ll focus on transportation and shed some light on what we may be taking from our future selves if we don’t truly understand the effect of monthly payments.

In the journey of acquiring a vehicle, individuals often find themselves pondering two primary paths: purchasing a used car outright or embracing the route of monthly payments to finance a new car. This analysis aims to shed light on the financial nuances of both options, focusing on the costs of buying a used car for $10,000 and acquiring a new car with a $10,000 down payment, followed by monthly payments to cover the remaining $20,000 at a 12.24% interest rate.

Scenario 1: Opting for a Used Car

Purchasing a used car for a flat rate of $10,000 emerges as a financially astute option for many. This route clearly outlines the initial cost, freeing the buyer from the burden of monthly payments and interest rates that accompany a loan. Furthermore, used cars generally attract lower insurance premiums, potentially leading to considerable savings over the years. Additionally, the bulk of the depreciation has already been borne by the previous owner, allowing the vehicle to retain a larger fraction of its value over time compared to a new car. However, it is essential to factor in that used cars might incur higher maintenance costs, especially if they are beyond their warranty period.

Scenario 2: Embracing Monthly Payments for a New Car

On the other hand, choosing to finance a new car introduces a more complex financial landscape. The buyer commits to a series of monthly payments to settle the 12.24% interest rate on the remaining $20,000. These monthly payments, combined with higher insurance premiums and the rapid depreciation that new cars undergo, can escalate the total cost of ownership significantly. Moreover, new cars are subjected to higher registration and tax fees, further amplifying the financial commitment.

Investment Potential: Leveraging Monthly Payments into Index Fund Investments

Imagine a scenario where the individual who opted for the used car decides to invest the amount equivalent to the monthly payments of the new car loan into a broad market index fund using passive index fund investing boasting an average annual return of 8%. Assuming the monthly payments for the new car loan would be around $444 (calculated over a 5-year term), this person could potentially channel this amount monthly into the index fund. Over a period of 5 years, this strategy could cultivate a significant growth in their investment portfolio, capitalizing on the compound interest phenomenon to enhance wealth. This approach not only avoids the interest costs associated with the car loan but also allocates the money in a way that could potentially yield a substantial return.

A Five-Year Comparative Analysis

After a span of 5 years, the individual who opted for the used car and invested in the index fund would have accumulated a notable amount in investments. Using a compound interest calculator, we find that with a monthly contribution of $444 at an 8% annual return, the investment would burgeon to approximately $31,291.

Conversely, the person who embraced the monthly payments for the new car would likely possess a vehicle with a higher market value compared to the initially purchased used car. However, this comes without the augmented net worth that passive investment in the index fund could have furnished.

So, we pose this question to you, dear reader: five years down the line, would you rather have a used car and the additional net worth (approximately $31,291) generated from passive index fund investments, or a newer, more valuable car but devoid of the financial growth that investing could have offered? This choice largely depends on individual financial objectives and preferences, underscoring the necessity to weigh both immediate and long-term financial outcomes when deciding between a new or used vehicle.

Conclusion: Think Before You Leap

Monthly payments, especially for high-interest items and payday loans, are often a trap that keeps the consumer in a cycle of debt, enriching companies at the expense of the individual’s financial health. Before succumbing to the allure of easy monthly payments, consider the long-term implications and whether the purchase is truly necessary.

We urge you to think long and hard before making that purchase using monthly payments. Remember, you financial freedom through consistently wise decisions and disciplined spending. Don’t let the dark secret of monthly payments keep you bound in financial chains.

David Baughier

My passion for helping others led to the curation Fiology. Help me spread the message of Financial Independence by clicking a colorful link above and sharing this post on your favorite social platform. Thank you!

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