When I was growing up, my grandmother used to buy items from a particular catalog. I won’t name the company, but it’s one of many that operate in a similarly sly fashion. It offers popular items for only a few dollars each month, making it ‘affordable’ for everyone to have the latest in technology or fashions.
You can conveniently finance with them at ‘competitive’ interest rates somewhere in the 30% APR area over several years, making payments of twenty or thirty dollars a month on some high-end items. For example, if you want to buy your kid that $400 Apple iPad 2 (16gb) but can’t afford to shell out that much cash at once, you can just make payments of $47 each month. Sounds great, right?
Look at the small print. You are not paying $400 for an iPad 2; you are actually paying $570 for it. By the time you’ve paid it off, there will have been several newer, better, and probably cheaper versions available to you. Some of you will be shocked…but a lot of you won’t be. You’ll say to me, ‘Well, Jessica, how do you propose I afford to pay $400 all at once on something my kid needs for school/work/to watch YouTube videos? Some people just don’t have that kind of money lying around’.
I get that. I don’t always have that kind of money lying around. So, I don’t always get the latest and greatest technology. I have been known to finance things that I need, and while it’s never the best way to pay for something, it has helped in a pinch. I get that, I really do. But, what I don’t get is how people are willing to let themselves be ripped off because they feel like they can’t do any better.
It’s not just the catalogs, either. There are rent-to-own shops on every corner in my hometown, and across the street from those are the payday lenders. You know the ones; they all have big neon signs that say ‘No Credit, No Problem!’ They are more than happy to sell to you or lend to you even if your credit score is low because they are making a HUGE profit from your inability to wait patiently and save up to buy the things you want. They are the Poor Man’s trap—the financial and psychological trap we fall into when we aren’t willing or able to save and pay cash for these items.
Low credit scores prevent you from getting access to credit with low interest rates. This means you pay more for money you borrow, including when you apply for credit cards. But, here’s the thing: credit scores and interest rates are just numbers, and if you don’t have that mountain of debt sitting on your chest, those numbers won’t look so important to you.
If you are debt free, you won’t have to use all your hard earned money to pay your bills. You’ll have plenty left over to ‘play’ with, and you’ll be able to buy the things you want as well as the things you need. Every time you force yourself to save up for something expensive and avoid using these rip-off merchants you are strengthening more than your resolve to become debt free. You are telling yourself that you deserve to be happy and financially in control, and that is a powerful thing.