No Money Down

Brand new wide screen TV, hi-fi stereo and leather recliner chairs. Dont 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.

Heres the deal, there arent any deals in a stereo shops, or any other of those dont 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 dont 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 cant afford it now what makes me think Ill 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.