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Buying on credit (ie - No interest for 12 months)
SeñorAmor
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This goes hand in hand with my other thread, but I didn't want to post both questions together, for obvious reasons.
In the aforementioned thread, my wife and I are considering purchasing a new appliance set for our kitchen. While we have the money on hand to purchase it outright, Best Buy is offering 0% interest if the balance is paid in full in 12 months. My wife wants to drop the full payment right now. I want to pay it off slowly over the 12 months. My reasoning is twofold:
1) It helps build our credit (we have excellent credit so this point is really moot, but still it doesn't hurt) by having credit and then paying it off. (Right?)
2) Should the unfortunate happen and we need a big chunk of cash (car issue, doctor bill, etc...) we still have the money in the bank.
Am I wrong? Am I right?
If I'm wrong, tell me I'm wrong and I'll throw my moneys at the cash register and walk away with my shiny appliances.
If I'm right, how can I convince my wife to see it my way? We have this argument every time we make a big purchase (furniture, electronics, etc...) and so far I've won every time, but it's getting to be a real bear getting my way. Her emotions are trumping my logic (mostly because as a married man I know I can be either happy or right ;-) ).
So how do I handle this situation? Thoughts?
In the aforementioned thread, my wife and I are considering purchasing a new appliance set for our kitchen. While we have the money on hand to purchase it outright, Best Buy is offering 0% interest if the balance is paid in full in 12 months. My wife wants to drop the full payment right now. I want to pay it off slowly over the 12 months. My reasoning is twofold:
1) It helps build our credit (we have excellent credit so this point is really moot, but still it doesn't hurt) by having credit and then paying it off. (Right?)
2) Should the unfortunate happen and we need a big chunk of cash (car issue, doctor bill, etc...) we still have the money in the bank.
Am I wrong? Am I right?
If I'm wrong, tell me I'm wrong and I'll throw my moneys at the cash register and walk away with my shiny appliances.
If I'm right, how can I convince my wife to see it my way? We have this argument every time we make a big purchase (furniture, electronics, etc...) and so far I've won every time, but it's getting to be a real bear getting my way. Her emotions are trumping my logic (mostly because as a married man I know I can be either happy or right ;-) ).
So how do I handle this situation? Thoughts?
SeñorAmor on
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The main counter to your argument about having money if something comes up is that if something DOES come up and for some unforeseen reason you can't pay it off in the 12 months, you can end up owing all that back interest at a crushing rate.
Always keep that in mind, otherwise it's a good deal.
If your credit is good, this is probably a minor concern, but keep it in mind.
Also, if you buy the appliances with this line of credit, you won't be able to get some of the benefits of using a credit card, for instance, like automatically doubled or extended warranties on the appliances.
Ah I glanced over that. Thanks.
It would be really silly to do it, if anything, do it, and pay it off in x/2 or x/4 or whatever.
If you dont want to do that, set aside the money and make payments over the 12 months. Pretend like that money doesnt exist for anything else.
The hard part about that is if something does come up, youre going to very tempted to use that money. If its already gone and spent, thats not even an option.
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(Note that I'm in Canada, so the plan might not be the same for you if you're in the States)
Set up an emergency fund with say 6 to 12 months worth of bills squirreled away.
It sounds like you guys have your finances well in hand, so this should be easy enough to do. Once that is accomplished there is no reason to keep any more cash saved up for emergencies, and any money you save for a purpose, like kitchen appliances can be used as such. (that is not to say you should stop saving, just put it into a 401k or an IRA or something)
Your happy because you have the peace of mind of liquidity, the wife is happy because you do not have unnecessary debt. And a happy wife is priceless.
- Will definitely have it paid off in X months. Can have it paid off in less (can have it paid off now, if I want to). I'm just against dropping a huge chunk of cash when I don't absolutely have to. I understand the not-wanting-to-have-debt thing, but the potential for shooting yourself in the foot exists and I don't want to run into that scenario. The bonus to the credit rating is icing on the cake, and will benefit us on future big purchases.
- No possible chance of missing a payment, paying late, or any other scenario where we will incur interest thus screwing us in any way, shape or form. We'll be abusing the system to the max here.
- Opening an additional line of credit may hurt our credit score? This is something I would definitely want to avoid. Clearly I want to improve our credit score (hers is better than mine by a bit, so I'm really doing it for me), but I don't want to do anything that could potentially harm either of our ratings. This does not make logical sense to me, but I'm by no means an expert as to how the system works.
- We would be paying cash, so the bonuses granted by other credit cards would not apply in our case.
- Both myself and my wife are quite frugal with our money. I can safely say that with the extra money in our bank account, we will not be tempted to spend it elsewhere (save for emergencies -- which is exactly the reason why I want to keep it there).
- I have never heard of one of these plans that charge you an admin fee. If there is such a thing, I've never been charged one, so perhaps I've been lucky.
There, I think that covers it. Thanks for the advice guys! It's all be quite welcomed. Anything else you have to offer will be equally as appreciated.
It can, yes. First of all, it lowers the average age of all your credit lines, since it's brand new. It also affects your total available credit, though whether this is positive or negative depends on your current situation. Opening (or applying) for a lot of new lines in general can hurt your score.
A single new credit line for someone with already good credit? Almost certainly won't hurt you at all, but it's worth making sure you're completely aware of it, is all. If something else happens soon and you need to again open a new line, then you might see some effect.
Edit: Also, if I were you I'd make the decision based on whether or not having the extra warranty from using a credit card is worthwhile for you. If not, then do the 12-month financing. I know you said you'd pay cash, but paying with a credit card (and then immediately paying that off) would be a smarter way of doing it, since you'd get the benefit of the extra warranty.
There's also the possibility of points/cash back/other bonuses if you pay with a card, depending on your card of choice.
We've had cards in the past (I had a Discover card -- the sole reason why my credit rating is lower than hers... a story for another day), but we've closed them as we don't really care for them. She uses her Discover card once a month and pays the balance off immediately to keep some credit history. I do not.
No, Best Buy doesn't charge any kind of administration fee for getting the 0% interest. It just has to be done with the in-store credit card, and it has to be over a certain amount.
That said, if you already have excellent credit, and you have the money to but it now, just buy it outright. Any benefit from paying it off over twelve months will probably be minimal, and if you happen to be late, or don't have it paid off on the twelfth bill, you'll get charged interest from the day of purchase.