No Money Down
By Alan Jenks
Brand new wide screen TV, hi-fi stereo and leather recliner chairs. Don’t
pay until next year, wow, what a deal. Do the chairs come in black? The store
loads it up, drops it off into the new theatre room and you are styling!
Next year just as they promised a monthly bill starts to arrive in the mail
for you to pay for the wonderful theatre room you have. You can handle it,
the amount is what they said and it is all good. One year later and you are
still paying off the theatre room, your spouse mentions you have been sending
them money for a long time. You shrug it off and think nothing of it. Another
year has gone by and you are still paying off the theatre, of course by now
you need another stereo because you blasted the heck out of the first one
but I will leave that for another article. Your spouse mentions it has been
quite a long time you have been paying for that stereo. You start to do some
math in your head but it all seems reasonable.
Here’s the deal, there aren’t any deals in a stereo shops, or
any other of those “don’t pay till next spring” type stores.
Before you buy something from anybody find out how much money, interest and
any other special payments are required before you own the thing. I mean
you find it out, do the math. Do not trust some 18-year-old kid paid on commission
who will be fired next week for doing something dumb, like not telling you
the correct amount. Add it all up and have a look at that number, likely
you will walk away at that moment because it is some crazy interest rate
with all kinds of penalties for early payments.
I must admit I once did buy some furniture from a don’t pay till next
year place and carefully read the documents that went with the sale. I did
need a dictionary to figure some of it out, and in the end I was convinced
I could pay it off before the interest started to be applied with no penalty.
Come next spring I go to pay it off and with some arm-twisting they let me
do it with no penalty as my sales agreement stated. They told me they had
never, ever seen anyone pay it off early. I asked did they do a lot of business
this way, they said thousands of deals a year.
You see I got the free use of their money for seven months. When that free
period was to end I paid the whole thing off because the real interest rate
was 28% and I think that is just below loan-sharking. However from talking
with them, I am the only one they have seen do it this way. What does that
mean, most people are paying 28% for the pleasure of their money for a few
months. It is not a good deal for the customer, unless you can pay it all
off before the interest starts. A good question to ask yourself is, “If
I can’t afford it now what makes me think I’ll have more money
a year from now?” I suggest you wait until you can pay cash for the
item.
Do rich people take loans, yes all the time. Do they do it for 10-15 times
what a bank charges for the same money, no not very often if they plan to
stay rich. The ability to have a special account that you put money into
on a regular basis for special purchases is a great habit to get into. I
know a wealthy guy who started a company to make enough money to get a $200,000
SUV. In the end he had a business that puts out great cash flow and bought
him a vehicle. He took a loan to start the company, the profits paid off
the loan and bought the SUV. Also the company still puts out profits for
his next desire.
Next time you see the greatest deal, pull out your calculator and start
doing the numbers, the salesperson will likely stop you and tell you not
to bother. They know if you finished your calculations you would never do
it. Let the next sucker go for it, you are on your way to financial freedom.
When you get there you will have the knowledge on how to get all the toys
you want without going broke to get them.
Larry, Alan & Ward are the Three Amigos who developed simple strategies
for debt management. Learn their strategies at http://www.winthedebtgame.com.
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