Alternative to using a 'credit' card for a purchase.

joyfulguyNovember 12, 2005

Suppose you have been planning to make a purchase of some product for $100. that you don't need right now, that you could easily delay purchasing for a year.

If you buy it using a store-issued credit card, the interest rate usually runs about 28%.

They won't let you run an account without paying any principal, just the interest (but the amount that they require as minimum monthly payment amounts to just about that). Which means that you never pay the loan off.

Suppose, however, that you buy it on a credit card, buy nothing else on that card during the next year, and arrange monthly payments so that you pay an equal amount monthly and have the account paid in full after 12 months.

On the other hand, suppose that you delay the purchase and put away the same amount monthly for the next 12 months, then buy the article (actually, you could buy it after about 11 months, considering your savings in interest cost).

As there is a declining balance owing each month, you didn't owe the full amount for more than one month and the average amount owing was about half that amount.

At the end of the 12 month period, lay out 14 One Dollar bills side by side on the table [in Canada, coins (called "Loonies")].

Look at them carefully. Put a piece of glass over them, let them lie there for another year, look at them often.

They are the amount of money that you kept in your pocket to use to buy something else that interested you, due to the fact that you delayed buying the original item until you could afford it.

Saved $14.00 - on a $100.00 purchase!

If you were using a regular credit card, the amount placed on the table would be about $8.00 - 9.00, as their interest rates usually run about 18%.

The television and advertisers try to convince you that you should buy stuff now - that " ... you deserve it ....", etc.

Andf they make as much, with minimal effort, on the interest on the loan that they made to you as they did on the original purchase, which required a lot of work to make, bring to the store, display and pay staff to sell to you.

Hidden profit.

But - it works.

Learning how money works: an interesting hobby - that pays well.

A "credit" card is really a "debt" card: before you used it, you weren't in debt.

Immediately on using it - you are in debt.

When you are in debt - you must pay someone rent on their money that they let you use, temporarily.

ole joyful

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cowboyind

...And of course the real advantage of delaying a purchase for a year to save money for it is that you probably wouldn't even want it anymore after a year. If you still wanted it after a year, then it's a pretty safe bet that it's something you really do have an interest in owning.

I think if any of us (myself included) look around our homes, we see the results of all the "sport shopping" we do. Not only do we waste thousands of dollars this way, but we litter up our homes with a bunch of junk.

    Bookmark   November 13, 2005 at 6:35PM
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joyfulguy

cowboyind,

Can you spell, "garage sale"?

ole joyful

    Bookmark   November 15, 2005 at 5:21PM
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