Credit Card Instalment Plan Dilemma: Smart Move or Slippery Slope for UAE Debtors?

Ever wondered if your credit card bill was auditioning for a role in a horror movie?

Ahmed, our neighbourhood tech enthusiast from Dubai, just had a close encounter of the expensive kind. He thought he was investing in his career with a sleek laptop and the latest smartphone. The excitement faded when he saw his credit card bill - an exorbitant amount which he hadn’t anticipated.

 Now, Ahmed’s wondering about a plot twist: should he convert his credit card bill into small monthly instalments? This decision seemed simple but required a good deal of thought to make sure it was the best move for his wallet.

To Convert or Not to Convert: The Million-Dirham Question

Is Splitting Your Bill the Financial Magic Trick You Need?

Let’s take a look at some of the advantages of turning your credit card dues into instalments:

• Breathe Easy with Smaller Payments: Breaking down a big credit card bill into smaller monthly payments can be a lifesaver. It helps you to fit the repayment into your monthly budget without feeling overwhelmed.
• Cheaper in the Long Run: Credit cards charge you more money over time if you don’t pay them off quickly. Choosing to pay in instalments can cut down on these extra charges, saving you money.
• Avoiding Late Fees: Forgetting a credit card payment can cost you. By switching to a monthly plan, you’re less likely to miss a payment since it’s easier to keep track of smaller amounts.
• Boosting Your credit Score: Paying off your debt on time can make your credit score better. On the other hand, owing a lot of money or missing payments can make it worse. A monthly payment plan can help keep your score healthy.

When Might Instalments Be a Comedy of Errors?

Given below are some of the reasons which explain why paying credit card dues in monthly instalments can be a bad idea:

• The Long Road: Paying in instalments can mean you’re in debt for more time. Think about whether you’re okay with that long-term commitment.
• Extra Costs: Sometimes, banks charge fees for setting up a payment plan. These extra costs can add up, so it’s important to know all the details before you decide.
• Encouraging More Spending: Knowing you can break down payments might tempt you to buy more than you need, trapping you in a cycle of debt. It’s key to know the difference between what you need and what you just want.
• Impact on Credit Utilisation: Converting a large due amount into instalments can increase one’s credit utilization ratio, which is the amount of credit used compared to the credit limit available. A high utilisation ratio can negatively impact credit scores, so it’s essential to consider this factor when opting for an instalment plan.

Smart Strategies Before You Convert: A Pre-Instalment Checklist

Deciding to convert your credit card dues into instalments is a significant financial step. Before you leap, here's a checklist to ensure you're making a move that aligns with your financial health and goals:

• Evaluate Your Financial Health: Take a hard look at your overall financial situation. Can you afford the monthly instalment with your current income? Will it strain your budget or leave room for emergency expenses?
• Compare Instalment Offers: Not all instalment plans are created equal. Interest rates, tenure options, and fees can vary widely between banks. Do your homework and compare offers to find the one that best suits your needs.
• Read the Fine Print: Understanding the terms and conditions is crucial. Look for hidden fees, penalty clauses for early repayment, and whether the interest rate is fixed or variable. 
• Have a Repayment Plan: Before converting, have clear plans for how you'll make the monthly payments. Consider setting up automatic payments to avoid missing a due date and incurring late fees.
• Reflect on Your Spending Habits: If your credit card debt resulted from impulsive spending, take a moment to reflect. Will converting to instalments change your habits, or is it a temporary fix? Sometimes, addressing the root cause of debt is more effective than managing its symptoms.

Written By: Nupur Jain

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