JohnRunchey.com

It’s a tempting offer - no payments, no interest. Take that beauty home-whatever it may be-and enjoy it today. No need to save, no need to plan, just sign on the line and walk away. Why would you pass up such a deal? Take advantage of someone else’s money for a year, that's a smart financial move, right?

Wrong.

These zero percent down deals are a bad idea on several levels. But first, an overview for those unfamiliar.

These things work as follows:

1. You see a shiny item too good to pass up

2. You fill out a credit application

3. Get near-instant approval

4. Take your wonderful item home

5. Enjoy a year with your wonderful item, without having to pay for it.

Then when the year is up, you either payoff the entire balance, or begin making monthly payments. And here’s the rub: If you don’t pay the entire balance, if you are even one day late, a retroactive interest charge is tacked on. An interest charge that is computed starting from the time you brought the item home. Now not only do you owe the original balance, you also owe a chunk of interest. Ugh.

That’s the first negative of these deals – the potential of getting hit with a big interest charge.

But of course you’ll payoff your shiny item over the first year, right? YOU won’t be one of these suckers that misses the deadline. Perhaps so, but why take the chance? Suppose you are buying something for $2400 and plan to pay $200 per month over the next year. If you have $200 surplus in your budget, then why don’t you have the $2400 sitting in an account already? You haven’t been saving for the past year, so what makes you think paying over the next year will be easy? More likely, you’ll postpone payment month after month, since this is a ‘free’ offer, until the deadline looms and you are screwed.

I got sucked into one of these deals when we bought a hot-tub for our new deck. It was the standard story: pay nothing, fill out a form, don’t worry about it for the next year. And so we did. I figured I’d pay a little each month such that it was paid off before the time period ended.

Of course I didn’t pay squat over the next year, so I had to scramble when the end time came, pulling money from savings, which I did happen to have. Fortunately I remembered as the date approached, and more fortunately I had money I could pull from, painful as it was.

Never again will I have the pain of pulling out that lump sum from my savings. This was something on the order of 8 grand, because we bought a nice, large tub. Ouch, that hurt, there goes our savings. So much for a healthy emergency fund.

Which brings me to the second negative of these deals – you are far more likely to spend more than had you saved for the item upfront.

At the hot-tub place, sitting with the wife and 2 kids in the tub testing it out, guess which one felt right? The huge one, of course. The nicest jets, the most leg room. How could we get anything less?

But suppose I had eight thousand dollars sitting in my pocket right then, rather than pursuing the zero down deal. Do you think I might have looked a little harder at the models a step or two down from the top, the models that would leave me with a grand or two in my pocket when I left the store?

You bet I would have. And sitting here now, several years later, the hot-tub just another ‘thing’ that we own, the lesser model would have been just fine. It would have felt just as good on the aching muscles, would have been plenty large enough. And I’d be that much closer to financial independence having held onto that extra cash.

My last gripe with these plans is a general one – debt is stress.

Stress on your marriage, stress on your pocketbook, stress on you. It hangs over your head, always there. Maybe you don’t think about it every day, maybe it doesn’t keep you up at night, but it’s there, just waiting. Waiting until the day you get laid off and it jumps out and yells “Here I am, you’ve got me to worry about too!”

Don’t add stressors to your life – nobody needs them.

Next time you are in a store and tempted by such a deal, ask yourself:

- Have I wanted this thing for a long time? Or is it just something shiny that has caught my attention?

- If I had the cash for this in my front pocket, would I gladly hand it over? Would I really?

- If I had the cash for this in my front pocket, what else would I prefer to spend it on, or prefer to save it for?

Don't get lured in. Think. Save. Succeed!