No money down! - Credit lessons from Judge John C. Ninfo

You’ve heard the promises of car loans, pay-by-week TVs and tricked-out cell phones. But what will those really cost you?

By: Judge John C. Ninfo II 

A recent automobile dealer’s radio advertisement invited listeners to “Come in, tell us how much you want to pay a month, and we will make it happen!”

This is a perfect example of the credit industry game. You’re made to focus just on what you believe are affordable monthly payments, rather than what things will really cost you.

If you analyzed the true cost of what you buy when you finance it over long periods of time or with high rates of interest, you wouldn’t buy as much. You would realize you couldn’t afford it.

Here are some other areas where consumers are being taken advantage of every day. The important lesson to learn is that you must be proactive about all of your finances as you go through life.

Hot cars
Years ago, you could only get a three-year car loan, and you had to show that you could afford it. Today, consumers buy the more expensive cars they want—rather than what will serve their needs and what they can afford.

They do it by bringing the monthly payments down significantly with seven-year (or even longer) car loans. The problem is that buyers ultimately pay much more for that car because they are paying interest for all those extra years.

If you need a car loan but can’t afford the payments on a loan of three years or less, look for a different car.

Tricked-out cell phones
By now, most people know the importance of analyzing cell phone plans to make sure they match your calling needs.

However, many consumers still don’t read their plans or carefully listen to the salesman, so they don’t understand the hefty fees and charges they may owe if they text people not on the same plan or terminate their plan early to get that new phone…

Cheap flat TVs
There’s no question that it is very attractive to be able to have that big flat-screen TV, sound system or furniture now for what seems to be a very reasonable and affordable weekly payment.
However, the effective interest rate for some rent-to-own contracts can be as much as 1,800
percent!

A video produced by Education Development Center, Inc. analyzed a rent-to-own contract for a $650 washing machine. It only required a $22-per-week payment over 24 months. The reality is that you’d end up paying $2,288 for that $650 washing machine—$1,638 more than it’s worth!
If you had continued to wash your clothes at a Laundromat for seven months and saved the $22 a week, you could have purchased the washing machine with cash.

Credit and debit cards
Thirty-five percent of the credit card industry’s revenue comes from fees (annual, over limit, balance transfer, pay by phone, pay online, cash advance, ATM and others).

You need to carefully read your credit and debit card agreements to make sure that you can avoid paying any of those fees, which can be as much as $50. Can you imagine paying $50 because you are one day late in making a payment?

Remember, the more interest you pay, the less money you’re going to have to buy and do other things. If you do have a balance on your credit card, make sure you pay it down as quickly as
possible to avoid those big interest charges. And never make just the minimum payment. Pay at least 10 percent of the outstanding balance if you cannot pay it in full.

Throughout your life, you should strive to be as debt-free as possible. The less debt you have, the less interest and fees you will pay, and the more money you will have to do and buy the things that you really need and want. When you have a high financial IQ, you will realize that avoiding debt, not incurring and trying to manage it, is the key.