Mark D. Goldstein, CFP®
Certified Financial Planner
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|Disgusting. Trump just signed that piece of $#!+ $1.3 trillion omnibus spending bill... despite an earlier threat to veto the 2,200+ page monstrosity that nobody has even read! In fact, most lawmakers have already left Washington for a two week undeserved vacation.
I was reminded of someone I met who actually purchased a car on a credit card (yikes!). So, my friends, I'm feeling inclined to share some thoughts about reckless debt today.
The Downsides of Debt. Going into debt has multiple costs. The first is rather obvious: the interest owed to a financial institution. But there are many less than obvious costs.
For example, someone who finances a vehicle will typically spend more than if they had paid cash. Once they make the decision to finance, they often buy w-a-a-a-y more vehicle than they need or can afford. From what I've been able to observe, it's simply human nature.
You see, financing makes us feel like we're spending someone else's money.
That's why our government has an out-of-control spending addiction!
Spending too much money on a vehicle (or any other purchase) simply because a financial institution (positioned to profit mightily from your loan, by the way) says you can, is a very dumb financial decision.
For one thing, how about the loss of compounding interest on the money you now have to pay out in interest? How about the closing costs on the loan? What about the fees if you're late on a monthly payment?
Crucial point. In case you think you can beat the system by getting 0% financing, please understand that banks are in the business of making money. The interest on a 0% loan is built into the purchase price (If you don't take the 0% loan and pay cash instead, they will sell you the car at a lower price. The difference in price is the hidden interest charge)
Banks have created some incredible tools to convince us to allow them to take more of our money... and the "0% loan" is one of their most effective!
Debt's slippery slope. Sadly, many people... and governments... fall into debt and can never climb back out. After all, using a credit card to finance is so easy and convenient. So, the financing continues and the debt increases and people become slaves to their debt... working harder and harder (while saving nothing) just to get out of the red.
The lesson. Short-term pleasure creates long-term pain.