Sometimes people buy things straight away but choose to pay for them later.
Ways of doing this include:
- using a buy now pay later service which charges you weekly, fortnightly or monthly amounts over a certain amount of time
- using a credit card where you need to pay at least the minimum repayment amount per month
- interest-free deals which let you buy something and give you a long amount of time, like a year, to pay it off. After the interest-free period ends you will be charged a high interest rate on whatever is left to pay. The price of the item often has extra fees included in the total.
Debt is when you owe someone or a company money. Bad decisions, like buying things you can’t afford, can lead to out-of-control debt.
Getting into debt
Knowing how much you have to pay, when you have to pay it, and making sure you have the money when it’s due is how people manage debt.
If you can’t afford something when you want it, it can be disappointing. You might feel like you’re missing out. That’s when using credit cards or buy now pay later services can be tempting.
Credit cards, buy now pay later services, and interest-free deals help people get something straight away and pay for it bit by bit over time.
But if you don’t have the money when the bill shows up, you can end up in what is called arrears. Arrears is the amount of debt that you haven’t been able to pay by the due date. And it can get out of control quickly.
If you don’t pay the repayments back on time, or during the interest-free period, the company will charge you high levels of interest or late fees. You’ll then still need to pay the repayments and now you have extra money you owe on top.
For example, say you borrowed $500 on a credit card, with an interest rate of 20%. If you only pay the minimum monthly repayment, say $20, it will take you almost 3 years to pay off the loan, and you’ll end up paying over $150 in interest. That means a $500 purchase will end up costing you more than $650!
It might not sound like a lot, but if you end up with a few debts over time, you might find yourself paying a large amount just in interest.
If you can make higher repayments each month, you’ll pay off the debt faster and pay less interest.
There are free and confidential financial and legal services you can use to help with debt:
- The National Debt Helpline: www.ndh.org.au
- Youth Law Australia: www.yla.org.au
- Look through the Australian Government Department of Social Services’ Grants Service Directory for financial counselling services in your state or territory.
Deciding if you ‘really need it right now’
People make decisions every day about whether they should or shouldn’t spend money on things. One-off purchases that don’t cost a lot are usually okay if you can still pay for the things you need.
But if you’re spending money on things and then running out of money later, or you end up needing to pay more, you can find yourself in trouble.
People can often run into trouble when they subscribe to services or install certain apps with in-app purchases.
Tips for teens/adults
Before you tap ‘I agree’ or enter your card details, make sure you know what you’re agreeing to. Read the fine print and if you don’t understand, ask an adult.
If you know someone who has access to the service you want to try, ask them what they do and don’t like about it. That way you can make a more informed decision and decide whether it’s worth signing up for.
A smart decision a lot of people make is to wait until what they want is on sale. Spring sales, end of financial year clearances, Boxing Day sales—they happen every year and if you can wait a little while you might get a better deal. Another plus for waiting is that once a little bit of time has passed, you may realise you don’t want or need it anymore. Money saved!
Remember that when you use money to buy something today, you give up the chance to buy something with that money tomorrow.
Teens these days will do most of their purchasing and subscriptions online and when you’re not physically signing on the bottom line, it’s easy to gloss over the fine print. Help them form good habits by reminding them to read the terms and conditions and helping them understand any complex terms.
Remind your teen that if something is ‘free’ on the surface, it’s very likely there are hidden costs.
Next time you sign up for something (a phone plan or a credit card), show them the terms and conditions and explain terms like cooling-off periods and exit fees. The Australian Consumer Competition & Consumer Commission website explains what your rights are when it comes to contracts.
Tell them a story (everyone has one!) where something ended up costing more money than you expected, and what you did to fix the situation.
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