Lesson Learned: Financing purchases and no money down

What have you financed in the past?

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:

1. No money down deals are extremely risky because the lender can easily back charge you interest at high interest rates
2. Major purchase items have financing costs built in - stores are willing to discount when paying with cash
3. Financing can added extra stress due to fear of late fees, penalties, and limiting the amount of money available for other expenses every month
4. 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

Lesson Learned: My First Credit Card

What were your experiences with your first credit card?

The summer prior to my first year at college I was mostly hanging out until dorms opened up. One day I got a call on the phone from a banker asking if I would like a credit card. My first reaction thought was, "Hmm, why would I need a credit card?". He must have sensed this because he started talking about all of the things you could buy with one, the financial freedom I would have, and how it was such a great offer because it would help me establish a credit history. So I said yes, without ever discussing credit limits, minimum payments, interest rates, or late payment fees.

I promptly got the card in the mail a few days later. When I held it in my hand I had a huge rush of adrenalin - wow, I had a credit card. I had power now. Adults have credit cards - that means I'm an adult now! I started using it immediately.

After a few months the adrenalin of the credit card had worn off and I started looking at the details of the card. The interest rate was 12% with a cash advance and wire interest rate of 30%. The interest rate would also jump to 30% if I made any payments late along with a $20 minimum late fee. I suddenly realized how easy it was to mess up using the credit card and promptly stopped using it..for a time.

About a year and a half after I got the card I started using it again. But this time I told myself that as long as I made it a point to make the payments in full on time, I would be just fine. But sure enough, I missed a payment by a day, and it cost me $20. Then I missed another, and another, and another..and I had just about had it with the card and I was about to cut it up. Then I saw an ad one day for a rewards program I could sign up for with the card. So I signed up for it thinking that I would be able to earn a substantial amount of money in rewards that I could use when I graduated college.

Fast forward about 3 years after I graduated and I had built up about $300 in rewards. In the meantime, I had paid roughly $200 in membership fees to stay in the program. Wow, all of that time and effort to stay on top of the credit card for a lousy $100??? Not to mention that I had subconsciously decided to buy some things that I would have otherwise not purchased if I didn't have the rewards program, which I'm sure cost me more than the $100 I had earned. I decided it wasn't worth it and canceled the card.

But canceling the card was hard. It took me 3 months to follow through with cancelling it - it was my first card after all. Now, I only use cash or my debit card. There are no membership fees, late payments, or accrued interest. There are no emotional highs, no emotional lows, and no concerns whether the payment went through in time. Just money.

So when all was said and done, I had learned:

• I had made a financial decision without fully understanding the consequences of my decision
• Getting my first credit card was an emotional roller coaster
• Having a credit card is a financial burden, not financial freedom - it was just as easy to slip up using a credit card than it was to use it "responsibly"
• The credit card rewards program was in place to make the bank money, not me
• I spent more money using the credit card than using cash because spending cash hurts

Next up: Paying for college with student loans