Have you ever purchased something that you really didn’t have the money for? One of the more common examples today is the automobile. Sure, traveling back and forth to work is necessary to pay the bills, but if you only have $2,000 in your savings account, what makes you think that you deserve to buy a $16,000 car? I am a strong advocate of a debt-free lifestyle and I often discourage people from making a purchase today with tomorrow’s money.
Think of all the potential items that people tend to purchase on credit: vehicles, furniture, lawn equipment, appliances, and sometimes even personal accessories. Do any of these items increase in value over the years? No! In fact, all of these material goods only decrease in value, making the purchase even more expensive. There are two main reasons why I think buying goods on credit is a terrible idea: (1) Interest charges and (2) an unknown future.
Don’t Donate Your Money to Interest
When all of this stuff is bought on credit, the banks aren’t giving you a hand-out for the purchase. Nope, those massive corporate buildings are built with your hard-earned dollars, but you hardly notice it because you pay out only a few dollars at a time. Over the years though, all of your interest payments start to add up. That $2,000 washer and dryer set actually cost you $2,800 after the interest. Your car cost you $18,200 even though the sticker said $16,000. And don’t forget about your furniture that’s falling apart (because you brought it home 5 years ago)! After you make that last payment, your total amount paid out is $2,600 instead of the $1,999 deal you thought you were getting.
Sure, it doesn’t sound like much when you look at it individually, but let’s add up the interest payments from your car, the furniture, and that washer and dryer: $2,200, $601, and $800 respectively. All together, you’ve paid $3,601 on interest. That’s basically the equivalent of throwing a dollar bill into the fire every single day for 10 years. I don’t know anyone that would actually burn their money, but there are plenty of people that throw their dollars away on interest. I urge you not to be one of these people.
Be Prepared For a Rocky Future
When you purchase all that stuff on credit, you’re agreeing to pay back your debt over a long period of time with small, equal payments each month. Everything seems manageable for a while, but when you attain 3 or 4 large items that you bought on credit, suddenly your payments rise to nearly $1,000 a month. Factor in a house payment, insurance, food, gasoline, and clothing, and you’re pretty strapped for cash each month.
“Oh well,” you think to yourself, “Money is pretty tight, but I’m surviving.” And then the unthinkable happens. Your work is downsizing and your job is no longer needed. Now you’re left with a pile of bills and not nearly enough money to pay them all.
Since you did not fully own any of your possessions, they are all taken away from you – the furniture, the washer and dryer, your car, and yes, even your house. You are left with nothing – all because you decided to make your purchases with credit.
What is your view of debt? Have you ever bought something that you didn’t really have the money for?