Layaway Plans and “No Interest Until” Offers
I read this cute saying in Reminisce Magazine the other day. It said:
“Too many people buy things on the lay awake plan.”
I chuckled at it but I realized that those words are so often very true. It was reinforced to me this past weekend when I was bombarded with ads on TV saying “No interest until the year…”
Top that with a woman asking me if she should buy some new things for her home which were on sale and that she didn’t want to pass up. The cost was going to be $6,000. Her husband had only been working a few months after having been laid off and they had no savings, so they were going to charge the things.
Here are a couple of questions I asked her to help her make her decision:
Would the interest she would be paying on it cancel the savings she was getting?
She said no because the great part was that the company was giving 0% interest for 1 year and they didn’t have to worry about interest. Then I asked the next question which people in this situation don’t often think to ask themselves.
Can we afford the extra $400-$500 monthly payment each month for the next year on top of our regular bills?
This is what she would have had to pay each month for a year in order to get it paid before having to start paying interest. In our minds we often think, “I don’t have the money now but I will have a whole year to figure out how to pay for it.” We falsely think that in a year we will have had some magic fairy bring us all the money we need and will be able to pay it off. We put it on the back burner, get busy and forget about it then BAM! Your year is up and you still don’t have the money. If you are struggling now to make ends meet, chances are you will be in the same boat in a year. For some reason not having to pay interest for a year often gets confused with not having to pay on that bill at all.
So again, can you afford another $400 -$500 if you are already struggling?
Did you read the fine print and do you know all the facts?
People don’t always read the fine print and the salesman often doesn’t mention it to you either. Most of the time, if you don’t get it paid off by the end of your interest free period, you get billed for all of the interest you would have paid back to the first day you bought it, meaning there was really no interest free period at all. Yes, they say you don’t have to pay interest for a year but that just means they are giving you a chance to pay it off in a year.
Do you know how much interest can be added to $6000 in one year of not paying on it? Depending on the percent but it can be hundreds and even a couple thousand of dollars. Many companies charge 29% interest which works out to nearly $2000 PER YEAR extra on that $6000 item. This is why people often can’t seem to dig themselves out of debt. So much for the good deal.
Don’t be gullible and easily swayed. Most of these too good to be true good deals are not good deals.
What to do:
- Save up for what you need.
- Shop around. If it is something you can’t wait to buy and really need now (like a refrigerator) then do your homework and shop around.
- Sleep on it. If you have done all of the above then sleep on it for at least one night. If the sale is only on for today and you will miss it well so be it. It was not meant for you. Trust me- Another sale always comes along.
In closing, remember this: We don’t know what the future holds. You could lose your income next week, a spouse could die or leave, the economy could bottom out or you could be seriously disabled in a car wreck today. As negative and depressing as that all sounds I just want to remind you to face reality – things happen. The creditors don’t care what happens in your life and you will still have to pay even if something unexpected happens.
Each debt you bring upon yourself is like another heavy burden you are adding to your back to carry. Imagine walking down the road and you and your spouse are carrying this heavy overwhelming burden. You seem to be doing fine trotting along carrying your burden but then suddenly your spouse is out of the picture and you are carrying the burden alone. It is heavier but you are still doing ok. Then you trip and break your leg and arm. The weight of those burdens doubles and becomes almost impossible to carry.
Be careful. Life happens. Make sure that you are not adding more burdens to your back than you will be able carry.
-Jill
For more easy and practical ways to save money and get out of debt, check out Dig out Of Debt and learn more about how to keep more of your money.
Photo By: Mark Hillary
Such good advice! I worked with a young fellow who missed the payback period for his interest free period, and got stuck not just with interest, but had his wages garnisheed, as well! It was a small company, too, and between all the chit chat, everyone found out. No company gives money away — they always try to have an angle. Cash is like always giving yourself a discount.
My daughter got hooked on one of those “no interest or payment for one year”. She didn’t pay and after the year, the company added about $2000 to her balance. She’s having a hard time paying it off, but she learned a valuable lesson.
I had cataract surgery last year. I needed the surgery but didn’t have the entire copay saved, so used the “no interest for one year” plan. I paid if off within six months.
Over the years, we’ve used these plans for emergencies like when the refrigerator died and couldn’t be revived at the same time the car died, but we always paid it off within the time frame.
I have no problem with these plans if they are used for “emergencies” and not just “wants”.
That “no interest for one year” has tripped up a lot of people because of just what you said. You still have to pay the interest. The stores are NEVER going to give you anything really FREE! If you don’t intend to pay it off within the year, you are much better off saving your money. My son recently purchased some furniture (he saved and paid cash) from a store that had great prices. I loved the quality of the furniture and I need a new couch and chair in the worst way but will not buy it on credit. I have been saving but heard yesterday that the store is going out of business by the end of August. Guess I’ll just have to set my sights on another sofa and keep saving. They say there are great bargains at 70% off but I don’t want to put it on my credit card so will just wait. Too bad. I really liked their things. The economy is really killing the furniture stores in our area.
If I can do it I would much rather use a layaway plan. If you find out you can’t pay on a layaway you can cancel the layaway. Yes you would end up paying some charges but a lot better than having your credit messed up because you can’t pay it. Plus it’s a pretty good bet if you can’t pay layaway payments you definitely can’t pay credit plan payments. “No interest” is a misnomer. It accrues and you get socked with it at the end. My husband and I found that out early in our marriage. We did manage to swing it okay but we vowed never again.
Dental care, medical care, medications, basic food, housing—–these are some “must-haves” and there’s no substitute for these that I have found. A new sofa, upgraded appliances, new decor items for the home—–these are not “must-have” items. Get real and and shop used. Example: I have often seen very nice sofas for $50 at garage sales. Good furniture is often very cheap at yard sales compared to new. When people move they generally can’t take all of their furnishings with them—-you win!!!! Clothing is often incredibly reasonable as well as kitchen wares. Learn to play the game —Buy used and get whatever you want for a song. There are so many ways/places to buy at your price? As for the old scam about no money down and no interest until whenever—–forget it. Save up a little cash and hit the used sales places–you will quickly learn which have the best quality and prices? Learn to play the game—-take pride in being being smart and getting whatever you want without the scams and interest fees.
We just signed on for 18 months free financing or our roof. We had no choice as our house insurance was going to drop roof coverage if we didn’t. It sucks. We are paying off our current home equity Loan as much as we can, then use that to pay up roof, as home equity is 3.9 vs 16%. What do you do when you don’t have $17,000. 00 laying around?
I’m sorry Sharon I didn’t quite understand what you were asking or what the $17,000 was for.
I have tried to explain this concept to so many people. Sales people are shocked when I say no thank you and pay cash. I have accepted 0% a few times–when we needed a new car after keeping the old one for 12 years I waited until 0% came around. But here’s another thought. We have worked very hard to have an impeccable credit score. Once my husband was interested in the 0% offer at the store so we applied. We were turned down–I told him that stores open to make money- not give money away. They wouldn’t give us the credit because they knew we would have it paid off without paying interest. These promotions are designed for people revolving the balance.