Pay Over Time Plans on Credit Cards: Pros and Cons

When a big payment comes up, I split it. Most of my cards let me take one purchase and turn it into fixed monthly payments, and I use that all the time. It keeps a big expense from landing on one statement, and I don't pay interest on it.

These plans go by different names depending on the bank, but they all work the same way, and a lot of people don't know they already have this on the cards in their wallet.

What Is a Pay Over Time Plan?

A pay over time plan (also called a fixed payment plan or installment plan) lets you take a purchase you already made on your credit card and split it into equal monthly payments over a set number of months.

You don't apply for anything. You open your card's app, pick an eligible purchase, choose a plan length, and the bank shows you the exact monthly payment and cost before you agree. That payment gets added to your minimum payment each month until the plan is done.

Here's what the big issuers call it:

• American Express: Plan It
• Chase: My Chase Plan
• Citi: Flex Pay
• U.S. Bank: ExtendPay
• Bank of America: Custom Pay Plan

The Pros

You can split big payments. This is the big one for me. A large purchase turns into a few predictable payments instead of one painful bill.

You can avoid interest. Amex Plan It, My Chase Plan, Citi Flex Pay, U.S. Bank ExtendPay and Bank of America's plan all charge a fixed monthly fee instead of interest. The fee is set when you create the plan, so it never grows.

Sometimes it's $0. Every so often, issuers run promotions where the plan fee is $0, so you split the purchase for free. Amex, for example, has offered $0 Plan It fees to new cardholders on some cards and on certain purchases. Keep an eye on your card's app, because these offers come and go.

No credit check and no new account. The plan lives on a card you already have. There's no application, no hard inquiry and no new loan on your credit report, which is a big difference from taking out a personal loan or opening a new card.

You know the total cost upfront. The fee is shown before you agree, so there are no surprises.

There's a finish line. Every plan has an end date. A regular balance doesn't, which is how balances quietly hang around for years.

You still earn rewards. Points and cash back on the purchase usually stay the same.

The Cons

It still counts toward your utilization. This is the one I always watch. The plan doesn't take the purchase off your card. The full amount stays part of your balance and keeps using up your credit limit until you've paid it down, so your utilization stays higher for the life of the plan. If you're about to apply for a mortgage, a car loan or a new card, keep that in mind.

The fee still costs something. Unless you catch a $0 offer, there's a fee, and on a long plan it adds up. Check the total cost the app shows you before you agree, and pick the shortest plan you can comfortably afford.

You usually can't cancel it. Once a plan is set up, most issuers won't let you change or cancel it. With Chase and U.S. Bank, the only way out early is paying off your whole card balance.

Not everything qualifies. Cash advances, balance transfers and fees generally can't go on a plan, and most issuers have a minimum purchase amount (often $100).

It's easy to lose track. One plan is easy. Several plans across a few cards, each with its own payment, fee and end date, gets messy fast. Amex and Chase allow up to 10 plans at once and Citi up to 7, so it can add up.

When It Makes Sense

A plan works best when you have a big purchase you can't pay off this month, you don't want to apply for a new card or a loan, and you'd rather have a fixed payment and a fixed end date than an open-ended balance.

It makes less sense right before you need your credit to look its best, since the balance keeps your utilization up until it's paid down.

The Quick Version

• Pay over time plans split a credit card purchase into fixed monthly payments.
• They charge a flat fee instead of interest, so you know the cost upfront, and sometimes the fee is $0.
• No application or credit check, since the plan lives on a card you already have.
• The downside: the balance still counts toward your utilization until it's paid down.
• Keep track of your plans so you know what each one costs and when it ends.

If you're juggling plans, due dates and balances across a few cards, Cardinate keeps every balance, due date and utilization number on one screen. Free to start, no bank login needed.

Sources

• Experian: Which credit card issuers offer installment plans?
• NerdWallet: Buy now, pay later already comes standard on many credit cards
• American Express: Buy now, pay later with Plan It
• Citi: What is Citi Flex Pay?
• CNBC Select: Credit cards offering buy now, pay later options