How is it that someone who in their right mind knows they shouldn’t buy something?
They quite clearly haven’t got the money for it.
But somehow it is justified as ‘right thing’ to do because there is an interest free option available.
The reality is, whether it is now or later, the money still needs to be paid.
Looking at your budget over 12 months, I ask the question, “Could you afford $5,000 for a new lounge chair this year?”
Maybe the answer is “no, my budget doesn’t allow it”.
If in the same breath, if someone asked you “Here is the $5,000 lounge chair for free – you just need to pay it back over 12 months and I won’t charge you interest. Would you like it?”
For some reason people tend to say yes and feel a lot more comfortable with that.
The reality is, over the next 12 months, you still need to pay $5,000. It is just how the transaction has been dressed up.
A lot of pain now or a little bit of pain for the next 12 months.
Many punters don’t know about the trap in these interest free arrangements. Most of the mainstream arrangements are setup to be interest free only if the loan is paid in full. Let’s say you get to the end of the 12 months and you still owe $20. You have done a great job paying back the vast majority of the money right?
On the 366th day, because the amount hasn’t been paid in full you are charged the full % interest on the full $5,000. This could be above 20%!!! Ouch.
Crippling ourselves by stealth rather than dealing with the root problem.
So ask yourself do I have the $5,000 to start with? (or have the ability to pay this back within the 12 months)
Stay tuned for the release of our podcast soon that will go into more detail on this.
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