Don’t Bother Me With the Price – Just Give Me the Monthly Payments
George Boelcke FCI
July 19, 2007
Buying something expensive, like a car or a house comes with some really high monthly payments. OK, that’s a no-brainer. Or as the saying goes: You get what you pay for.
Well – not quite - maybe we can talk ourselves into having it both ways. Big ticket items come with big payments and big financial pain – for a while. But we really want those big ticket items – but we’re not prepared to pay the price for them – the price of adjusting our budgets and cutting down elsewhere in order to make these high payments.
What’s the alternative? Retailers keep increasing the loan terms to make the big sales and willingly trick us into the small payments. In other words, stuff keeps getting more expensive, we refuse to settle for less and can’t afford to keep increasing our payments to buy stuff that now costs more.
But what do retailers care how long we owe it for and how close it puts us to financial disaster? They get paid the day we sign the paperwork – the rest is up to us. Up to us to stop and think before signing, to down-size our expectations of what we can afford… or to pay forever.
But when that’s our mindset, it’s the same as telling the retailer: “I really want to buy it and I’m prepared to pay 10, 20 or 50 percent more than the price in order to have it.”
Sounds stupid, backwards, really expensive and self-defeating? You bet – but it’s exactly what millions of people do every day when they stretch the financing to buy something that’s out of their price range.
A $30,000 car, boat or renovation project, financed for five years is $600 a month. But change that to a seven year term, which we might be able to afford, and the total interest you’re paying back is up to more than $8,000!
On a $250,000 mortgage, a 30-year term makes the payments about $1,660 a month. For many, that’s not within their budget – fair enough. The logical plan B would be to find a less expensive home. But that’s not what most people tend to do.
Instead, we go to plan “awful” (as opposed to plan B) and stretch it to a 40-year term. It only drops the payments by $110 a month, but at a price – a really steep price of paying $xxxx more in interest! 1553 vs 1663 Or even worse, to plan “deadly” and pay interest-only payments where there isn’t a dime of principal repayment – ever.
That’s the same as overpaying xx% or more for the purchase in the first place, isn’t it?
The sad reality is that we’re becoming more and more of a “payment only” society. That is, if we’re not there most of the way already. And that plays right into the hands of lenders and retailers – yet makes it worse and worse for us. We don’t realize, or wanting to face the fact, that this attitude comes at a high cost of almost permanent debt and a state of never getting out from under our payments in this lifetime.
Unfortunately, the least heard four words in the world of retail are: “I can’t afford it.” Imagine the power and financial freedom you’ll reach when you learn to say those words out loud and start to set boundaries on your budget and monthly bills.
Real financial and debt freedom comes when we refuse to give in to the payment only mentality, when we add up the total we have to pay back and not just the price, and refuse to stretch payments past the point of reasonable. But that applies to a very small percentage of the population, doesn’t it?
Or to adapt another old saying: You can learn it now with some digging or a $15 book – or learn it later when a credit councilor or bankruptcy trustee will walk millions of people through what we should have thought about in the first place. It’s sad and very unnecessary.
Well – not quite - maybe we can talk ourselves into having it both ways. Big ticket items come with big payments and big financial pain – for a while. But we really want those big ticket items – but we’re not prepared to pay the price for them – the price of adjusting our budgets and cutting down elsewhere in order to make these high payments.
What’s the alternative? Retailers keep increasing the loan terms to make the big sales and willingly trick us into the small payments. In other words, stuff keeps getting more expensive, we refuse to settle for less and can’t afford to keep increasing our payments to buy stuff that now costs more.
But what do retailers care how long we owe it for and how close it puts us to financial disaster? They get paid the day we sign the paperwork – the rest is up to us. Up to us to stop and think before signing, to down-size our expectations of what we can afford… or to pay forever.
But when that’s our mindset, it’s the same as telling the retailer: “I really want to buy it and I’m prepared to pay 10, 20 or 50 percent more than the price in order to have it.”
Sounds stupid, backwards, really expensive and self-defeating? You bet – but it’s exactly what millions of people do every day when they stretch the financing to buy something that’s out of their price range.
A $30,000 car, boat or renovation project, financed for five years is $600 a month. But change that to a seven year term, which we might be able to afford, and the total interest you’re paying back is up to more than $8,000!
On a $250,000 mortgage, a 30-year term makes the payments about $1,660 a month. For many, that’s not within their budget – fair enough. The logical plan B would be to find a less expensive home. But that’s not what most people tend to do.
Instead, we go to plan “awful” (as opposed to plan B) and stretch it to a 40-year term. It only drops the payments by $110 a month, but at a price – a really steep price of paying $xxxx more in interest! 1553 vs 1663 Or even worse, to plan “deadly” and pay interest-only payments where there isn’t a dime of principal repayment – ever.
That’s the same as overpaying xx% or more for the purchase in the first place, isn’t it?
The sad reality is that we’re becoming more and more of a “payment only” society. That is, if we’re not there most of the way already. And that plays right into the hands of lenders and retailers – yet makes it worse and worse for us. We don’t realize, or wanting to face the fact, that this attitude comes at a high cost of almost permanent debt and a state of never getting out from under our payments in this lifetime.
Unfortunately, the least heard four words in the world of retail are: “I can’t afford it.” Imagine the power and financial freedom you’ll reach when you learn to say those words out loud and start to set boundaries on your budget and monthly bills.
Real financial and debt freedom comes when we refuse to give in to the payment only mentality, when we add up the total we have to pay back and not just the price, and refuse to stretch payments past the point of reasonable. But that applies to a very small percentage of the population, doesn’t it?
Or to adapt another old saying: You can learn it now with some digging or a $15 book – or learn it later when a credit councilor or bankruptcy trustee will walk millions of people through what we should have thought about in the first place. It’s sad and very unnecessary.
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