Before you finance that next big purchase, take a step back and realistically look at your situation. Can you afford another monthly payment, no matter what it is? If you are trying to get out of debt or stay out it, then you need to make smart financial decisions that will keep you ahead. Here are 7 things people shouldn’t finance and real reasons why not.
Though there is probably a million of things you shouldn’t do with your money, there are a few that I would tell you to never put on credit. Especially if you can avoid it. We sometimes make decisions about our money that seem okay in the moment, but often cause dread down the road.
Our refrigerator started to go downhill and we knew that an appliance purchase was imminent. Our kitchen appliances were as old as the house, so there was no need to try to repair it and just made the decision to go buy one new.
As much as I wanted to purchase a fancy, hi-tech, double door stainless steel refrigerator, it clearly wasn’t in our budget. The no payment, no interest for 12 months seemed tempting, but we knew that if we didn’t pay it off early, we would have to incur all the back finance charges. Not worth it.
Instead, we decided to purchase it with one of our rewards credit card and paid it off in two months.
If you need to replace your appliances sooner rather than later, try to avoid financing them. Research your purchase before you’re ready to buy. Use Ebates to earn cash back on purchases online and in-store.
My first home was almost a fixer-upper. The issues were more cosmetic than anything, but I was determined to redo my kitchen. The oven, flooring, and cabinets were outdated and disgusting. I literally refused to cook in my kitchen until it was redone.
To be honest, I didn’t have $15,000 to get someone to come in to renovate the kitchen. And I just didn’t want another bill each month. It took me a while and I had to wait for bonuses and tax returns to get started, but I did it.
My Lowe’s card came in handy, but that was used mostly for materials. I enlisted the help of my dad and my friend and we worked on the kitchen ourselves. I measured and purchased cabinets from Ikea and everything else from Lowes. I’m not sure of the exact figures, but I know I didn’t spend more than $5000.
Now if I had financed my kitchen renovation or even obtained a home equity loan, I would probably still be paying on it. A wise decision considering the market crashed a year or so later and I no longer own that home.
Instead, consider doing renovations yourself and try not to go overboard. Make sure the changes you make in your home will actually have a positive effect on its value.
If you can, avoid home equity loans, because they can have variable rates and you end up having another lien holder on your home. If you plan on staying in your home for years to come or that the value of your home is more than what you owe, then maybe consider a HELOC.
My friend has tried to convince me that she only charges her trips to get the rewards and the frequent flier credits. That’s all well and good, but if you’re not paying these vacations off at the end of the month, you’re carrying over debt.
Traveling is good for the mind, body, and spirit, but if you have to finance your vacations you can’t afford it.
I’m all for having a good time, but paying for your vacation throughout the year – plus interest! Is just crazy. Plan early and budget for your trip, before you take one will save you lots of money later. Read my post on How to Travel More Even When You’re on a Tight Budget if you want to go on a vacation.
I want you to travel, but be smart about it.
I purchased my first home when I was thirty years old, as a single mother and a teacher. I made decent money, but I didn’t have a lot after my bills and mortgage was paid (which at the time was $1,600 a month).
Leaving from my parents home, I didn’t have a lot of furniture. In fact, I had none. I left my bed and basically had to buy everything else. My aunt bought me a microwave and my parents bought me a dining room table. Everything else was up to me to get.
Now, I could’ve furnished my whole house immediately with credit, but I did not want to go further into debt. So, instead of financing the furniture in my home, I bought what I needed piece-by-piece with money I saved up. It may have taken me a while to furnish my home, but once I did, I felt good knowing I didn’t have an additional payment to make.
The Clearpoint Blog gives some good points on why you shouldn’t finance furniture. Yes, you may want your home to be filled with furniture as soon as you move in, but it is smart to pay for it instead of financing it.
Do you know how outrageous it is to have to finance a phone? I remember the days when Sprint made us pay $200 for a phone when we signed up for service. Nowadays, with all a new iPhone coming out practically every year, payments have justified buying $1000 phones.
There are many reasons why you shouldn’t finance a cell phone, one being that if you have to you probably can’t afford it. Think about this…if you just financed an iPhone for $900, those payments are usually spread over 18 or 24 months. Considering Apple likes to release phones every other year (now it seems like every year), you’ve paid a lot of money for something that has rapidly lost value.
In order to upgrade you will have to pay your current phone off and then get into another payment plan for your new phone. Good luck trying to sell your phone at the end of your terms.
Save yourself the money and just buy the phone outright. If you don’t have the money for a brand new phone, purchase a used one. You can find a certified refurbished one or purchase one from eBay or somewhere similar (just be careful).
This is highly unpopular, but I’m going to say it anyways – stop financing cars. I agree with Dave Ramsey on this 100%. If you need a car, buy one outright. If you can’t afford to, you probably can’t afford it.
I’m not saying that you shouldn’t have a new car or that I never financed a car. I’m just saying that if you’re working hard to get your finances back on track – having a car payment is not the way to go.
Nevermind the devaluation that occurs once you go off the lot, but after you take into account the car payment, insurance, taxes, and repairs – you probably already busted your budget.
New cars are a bad investment and your warranty will probably end before your payment terms do. Also, you don’t really own the car until it’s paid off. So if you miss a couple of payments or total your car (without gap insurance), you risk having the car taking away from you.
A better option is to finance a used car or better yet, pay cash for a car from a private seller. Just do your research first and take a realistic look at your budget. I once financed a Volvo but realized the repairs were too expensive for me to handle.
Okay, I admit it. I’m not married nor am I planning a wedding in the near future, but I just find it foolish to finance a lavish wedding. A $50,000 bill for a one-day event is ridiculous.
Yes, we want something nice to celebrate with our family, but couldn’t we do that and save thousands of dollars? When people speak of how nice a wedding is, no one speaks of how much it cost. They talk about how beautiful the bride was and how great the food and music was. My friend put a $10,000 dress on her credit card and her marriage didn’t last two years. I wonder if she now regrets buying that dress?
If you’re planning a wedding, sit down with your fiance’ and come up with a realistic budget. Consider the after effects of spending money on a large and expensive wedding. Do you really want to start your marriage financially strapped?
There are many people who have planned budget-friendly weddings that didn’t involve maxing out your credit cards and accumulating debt. Instead, use the money you save on a wedding towards a down payment of a home or to pay off student loan debt. Here are 13 couples who spent less than $8,000 on their wedding and I’m sure you can, too.
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