How to keep your credit card instalments under control

The problem with instalments isn't the interest. It's that a twelve-instalment purchase is decided in a minute and paid off over a year, and by the time instalment number five comes around, three similar decisions have already been made. The statement that arrives isn't expensive because of one purchase: it's the sum of purchases that each seemed small at the time.

Why the statement is always a surprise

When you buy something in 12 instalments of 400, what you register mentally is "400 a month". What actually happened is that you committed 4,800 of your future income. The gap between those two ways of seeing it is why, four months later, the statement has a floor you don't recognise.

On top of that, each purchase starts in a different month, so the monthly total goes up and down with no pattern: one month six instalments are due, the next two finish and three begin. Nobody can track that from memory.

The number to know: your committed total

It's the sum of every instalment you haven't paid yet, across every active purchase. Not what you'll pay this month: the total outstanding.

You work it out like this: for each instalment purchase, multiply the instalment amount by the instalments left, and add it all up.

• Fridge: 12 instalments of 400, 5 paid → 7 × 400 = 2,800
• Laptop: 6 instalments of 900, 2 paid → 4 × 900 = 3,600
• Tyres: 3 instalments of 600, 1 paid → 2 × 600 = 1,200

Committed: 7,600. That's money that is no longer yours even though it's still in your account. If your monthly income is 7,000, you've just discovered you owe more than a full month's pay before buying anything else.

The second number: the calendar

The committed total tells you how much you owe. The calendar tells you when. It's the projection of what falls due each month, and it's what you need in order to know whether you can add a purchase.

With the three purchases in the example, the coming months look like this:

• Month 1: 400 + 900 + 600 = 1,900
• Month 2: 400 + 900 + 600 = 1,900
• Month 3: 400 + 900 = 1,300
• Month 4: 400 + 900 = 1,300
• Months 5 to 7: 400

Only then can you answer the question that matters: if I add a purchase of 6 instalments of 500, which month does it squeeze me? In this case months 1 and 2 go to 2,400, which is more than a third of a 7,000 income on the card alone.

Three rules that work

Look at the total price, not the instalment

Before accepting an instalment plan, multiply. Twelve instalments of 400 aren't "400": they're 4,800. That's the honest comparison against the cash price, and the only way to notice when "interest-free" isn't quite free because the list price was already inflated.

Set a ceiling on what you commit

A usable benchmark: keep the outstanding total under two months of income, and what falls due each month under 25% of what comes in. They're not magic numbers, but having a written limit turns the decision into arithmetic instead of a feeling.

Log the purchase the day you make it

With the total, the number of instalments and the date. If you wait for the statement, it's already too late: the statement informs you, it doesn't let you decide. All the value of this record is in having it before the next purchase.

Where to keep score

A spreadsheet is enough, and it's better than nothing: one row per purchase with the total amount, number of instalments, instalments paid and starting month. The boring work is projecting the calendar, because it has to be recalculated every month and by hand that gets abandoned fast.

Expenses does that projection on its own: you log the purchase once with its number of instalments and the finance section shows you how many are left and how they spread across the coming months. It's free, it doesn't connect to your bank, and you enter the purchases yourself.

Spreadsheet or app, the principle is the same: a credit card isn't money you have, it's money you're going to have. All you need is to be able to see how much of it is already spent.