The spring of my senior year I had finally decided to take the plunge and ask my girlfriend to marry me. I thought in order to propose I had to buy an engagement ring, even though I had no money to buy it. Oh well, I could just do one of those no money down deals that are everywhere now. So off I went looking for an engagement ring. I spent a grand total of 1 afternoon looking and I found one I liked, so I bought it on the spot. All I had to do was get a store credit card and the purchase would be put on it.
When I made my first payment I decided to look at the terms of the card and I was shocked. If I missed one payment, did not meet the minimum payment every month, or did not pay off the credit in one year, I would be back charged interest for every month since I made the purchase at an extremely high rate. I would then be charged interest every month until I completely paid off the entire balance. Luckily, I managed to get a job around that time and was able to payoff the loan in 6 months. Whew i thought, I dodged a bullet there.
After we were married for about a year we decided to buy a house. As many of you know, anytime you buy a house you never just buy a house. There is always an assortment of things you buy when you move in, and we were no exception. We must buy new furniture even though we already had hand me down furniture. So we went to the furniture store and bought a living room set consisting of a couch, a chair, and three stools. And I found myself in the same situation as I was in with the engagement ring - on pins and needles hoping my I would have enough money to make the payment every month in time because our budget was already tight. We were able to eventually pay off the furniture before the deadline and I was able to relax again.
Two and a half years after we wed we were expecting our second daughter. We knew we had to move the baby into the baby room and move our older daughter into her own room, which means we needed to buy her a bedroom set. So we decided that every month we would save up a $150 a month until the baby was born and we would be able to save up enough to cover the bedroom set. We did as we planned, and a couple of months before she was born we were able to finish saving up enough money ahead of time.
We went to the furniture stores and found something we liked for a decent price. If we had planned to purchase the set on credit we probably would have purchased the set right then and there, but with the cash in hand we decided to wait for a deal. And so we waited..and waited..and waited. Then the furniture store had the set on discount for 10%, so we went up to the store to buy. We asked since we have cash, could they cut us any other additional deals..and they gave us roughly a 10% additional discount. So just by having the cash on hand and waiting we managed to save nearly twenty percent, and without the risk of the financing.
We have decided to never finance purchases again, particularly for the following reasons:
- No money down deals are extremely risky because the lender can easily back charge you interest at high interest rates
- Major purchase items have financing costs built in - stores are willing to discount when paying with cash
- Financing can added extra stress due to fear of late fees, penalties, and limiting the amount of money available for other expenses every month
- Spending with cash gives you freedom to browse and say no without feeling the need to make the purchase right then and there
Next Lesson Learned: Buying a house
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