Don’t Pay Interest on Items that Lose Value
Our desire to want and consume can cloud our ability to think logically when it comes to making wise financial purchases. Don’t pay interest on items that lose value – something we can all agree makes sense, but most likely many of us are currently engaging in. Store credits, no interest credit card offers, and home equity lines have all contributed to this instant gratification spending/lending. It’s time to bring consumers back to reality - if you cannot afford something then you shouldn’t buy it. We realize this is easier said than done, hopefully by breaking down a few examples, we can open your eyes to the actual cost associated with borrowing to purchase losing investments.
Brand New Vehicles
By far, brand new vehicle purchases are one of the worst investments anybody can make. Without hesitation, people will take out a loan and pay significant interest on an investment that is guaranteed to lose value the second you drive it off the lot. In fact, most new vehicle owners actually owe more than their car is worth during the first couple of years the vehicle is in repayment. Nobody in their right mind would consider going to a used car dealer and saying, “I’ll give you $5,000 more than you are asking, for this beautiful used Honda Accord.” In reality, this is exactly what you are doing when you are buying the new car! Instead of taking out the loan today for the car you have been eying, consider putting what would be your monthly payment for the new car in savings. After you have saved a significant amount, buy the same car, only use your savings - you will not regret it.
Vacations
It’s great to get away from your job and spend valuable time with your family. But, just like your time is valuable, so is your money. Plan your next vacation far enough in advance so that you can actually save up for and afford it. Too many times vacations are plopped on a credit card or even taken with people’s home equity. Don’t put your home on the line or pay 20 percent interest all for a weeklong trip to Hawaii. Every cocktail you drink or meal you consume will actually end up costing roughly 15% more if you are vacationing on credit. How is this you ask? Depending on the loan used to travel, the interest accruing on each purchase, times the amount of years it takes to pay it off, substantially raises the overall cost of your vacation. Please, plan ahead and save some money, you will then enjoy yourself while you vacation without worrying about how you will every to afford it.
Credit Card Purchases
Credit cards have been getting people into trouble for years. It’s too easy to apply for and receive a couple thousand dollars worth of credit; after all, you probably have an offer waiting in your mailbox as you read this. With low introductory APR rates, we convince ourselves that we can payoff a big purchase before the interest will actually start to accrue. We have to stop thinking like this, once we get this item we are drooling over, we will move on to a new item. This vicious cycle fills our house with great toys, but leaves us in a world of debt. Generally, most credit cards will give you 0 percent interest for the first year and will then jack your rate up around 20 percent. If you couldn’t afford to make the 0 percent payment, you will never be able to afford the 20.
If you cannot afford it, you should not buy it. Words we can probably hear our grandparents preaching. The fact of the matter is - we should listen to this old school philosophy of buying. $
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Comments
I love the comparison of buying a brand new car to offering $5,000 over the sticker price for a used Honda, haha. You’re absolutely right though, and it really shows how crazy it is!
One of my financial goals is to never have to finance a vehicle, and luckily I haven’t had to so far. It’s so nice not having to worry about those payments every month; driving is already expensive enough!
@ Blake - It’s impressive you have been able avoid financing a vehicle, teach the rest of us!
Excellent webpage! I gave it a thumbs up with stumble and I Digged It too! Very informative and helpful about credit!
On that same subject I’d want to tell everyone about a company called Credit Assistance Network (in Florida) that helped me improve my credit scores. They were great! They didn’t remove everything negative but they did remove most of it. Even more importantly they gave me excellent advice to help me build my credit scores.
The website is http://www.creditagenda.com or http://www.expert-credit-advice.com
They did such a great job that I promised them I would tell everyone about them. Tell them Jim from Ohio recommended them!
I know a couple who pays cash for a new car every 5 years or so. They actually trade in their old car then pay the rest in cash. Now they explain to me how wise they are because they pay cash but I can’t help but laugh…
They are trading in a perfectly good vehicle for about 1/3 it’s resale value to a dealer (you know dealers never give you a good price for your trade in) also, the dealer is only reducing the sale price of the overpriced new car!!
Then they pay cash for a NEW car… They could simply pay cash for a very slightly used version of the same car on eBay with only 2000 miles and save THOUSANDS…
It really stuns me how financially foolish some people are.
[...] over to Milk Your Money to find out what Frank thinks about paying interest on things that lose value. I couldn’t agree [...]