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Straight or Budget?

Debt

Straight or Budget?

Reading Time: 2 minutes

Straight or budget relates to how you pay back the amount you spend on your credit card. In short, straight transactions have to be paid back within the next month. Budget transactions are paid back over an extended period of time – in instalments.  But the short answer is never enough so do read on.

Straight:

Most of the time, straight transactions have to be fully paid back within the following month. They generally do not incur any interest over this period.

If you do not settle your debt within the interest-free period, you may be penalised for late payment, and charged interest on your outstanding amount.  Also, your next interest-free period may be only granted to you after you fully settle what you borrowed. P.S. Interest on credit card debt can be quite steep. 

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Budget:

Budget transactions are normally paid back over an extended period of time – usually 6 to 60 months. These transactions incur interest at a rate agreed between you and your credit provider.

Buying on budget is similar to taking out a loan (at a relatively high interest rate), and paying it off in monthly instalments.

In most cases, your budget instalments are regularly deducted from your straight facility. This means that if your monthly budget instalment is R300, at each payment date R300 debt would be transferred from budget to straight. You would now owe R300 more on straight – and R300 less on budget.  You then settle this in the same way that you settle amounts you owe on your straight facility.

Like any loan, it is usually possible to decrease your outstanding balance on your budget facility by paying more than the minimum amount monthly.

Using your Credit Card:

Credit cards tend to have very high interest rates – using the budget facility may, therefore, have high borrowing costs attached. Equally, using up too much credit on the straight facility and then failing to keep up with repayments could lead to a poor credit score. Having said that, sticking to a straight facility may ensure that you do not rack up too much debt with the knowledge that repayments have to be made in the following month.

Credit cards can be very useful when managed effectively but could also keep you in a cycle of debt. The decision to take one out should be guided by solid financial principles – followed by consistently disciplined use. A good practice is to reserve them for emergencies such as medical emergencies or other serious household responsibilities.

The concepts described in this article can vary from one credit card provider to another – it is important that you familiarise yourself with the exact terms of your own provider before making any decisions.

 

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Thando

Thando is currently the Group Actuary at Clinix Health Group, having previously served as Actuary in Discovery Limited's R&D Lab. Thando loves tech, design, reading and is very passionate about the development of the African continent. Thando also runs Litmail, a tech startup in the e-communication space. All views expressed are Thando's own and neither reflect nor are influenced by the views of affiliated companies.

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