DVC Dilemma for us

[bongo59]

that is the kind of debt i can deal with.............

 

[2Princes2Princesses]

Well...I am somewhat closer to an actual decision, and you all have given me more to think about, additional angles on this..thank you.

As far as renting points for our stays if we wait it out, my cousins CM discount is actually cheaper than renting points. I really do not want to put our next couple of trips on hold.....my DH and I do not do anything extra...we don't go to dinner out, neither of us drinks, our "recreation" budget is basically for Disney, except for the occasional pizza and things we take the kids to locally. DH is not the conservative spender I am, and he doesn't mind saving if he gets some sort of return on it, and to be honest, skipping our trips for 2 years would make him nuts. He works hard and long hours and that is something he looks forward to. So postponing 2-3 years of trips?? Not an option for us. For purely selfish reasons.

DH and I had a long talk about everything, and he is all gung ho to push ahead and finance. I am still, of course, reluctant. DH and I both have extra short and long term disability policies, BTW, in addition to the standard NY state disability. I made DH get one and I had one, I am a transcriptionist, so carpal tunnel is a looming threat to me, so I grabbed the disability policy as soon as I was eligible.

Oddly, my father was a great financial adviser, not so great at his own finances. He was a "do as I say, not as I do" kind of guy. So, I cover my butt when possible.

Anyway, we have come to a few compromises. I am going to call our guide, who is great, and have a long chat with him about financing options, and all that. The fact that we can pay off any of the loans early without penalty helps.....I was worried about that. Although, I know that sometimes one SAYS they'll make double or triple payments, and then end up NOT doing that. So, still leery.

DH and I have also agreed that in the interest of buying in before rates go even higher....if we don't finance a portion, we are still waiting until February or when we can get a decent promo offer. Our tax refund usually goes into our "dont touch" savings. I have agreed to up the amount I put in our extra fund when I get paid and then put the taxes in the extra fund too. Our savings will take a hit as far as growth this year, but this route, we should be able to do cash by next Spring...not touch our current savings, and still go on the trips we have planned.

DH still wants to finance and buy now, but usually the more gung ho he is to rush into something, the more red lights go off in my head.

I was also disappointed to see that DVC only goes on your credit report if you do not pay on time. One thing that DH usually uses to get me to agree to finance (the only reason we have any credit cards and why we financed part of our truck) is to keep our credit scores decent. I know if you never have or use any credit, you have no credit when you need it. He did try this reasoning on me this time, but thanks to the boards, I told him he couldnt play that card this time.

Thank you all so much for all your help and advice, I will update when we take the plunge.

 

[WDW LOVR]

Some person here smarter than me can tell me where I'm wrong, but this was our thinking at the time of our DVC purchase.

We bought 170 points with our first contract which cost $88/point. 170 x $88 = $14960.

Financing through Disney for 10 yrs = $198/month payment of which in the early years of the loan is mostly interest.

So lets say we average $150/month in interest = $1800/year. In our tax bracket we get to reduce our Federal Income Tax by ~$650 for that $1800 of DVC interest (second home mortage) which is a net effect of ~1150/year in interest paid. There's also small deductions for the property tax portion of the MF's.

We could have paid cash for the DVC purchase by taking money out of an investment account. But by leaving that $14,960 in stocks/mutual funds and even if all you earned was a modest 8% return on that money you'd earn more than the interest you paid. $14,960 x 8% = $1200 for the year which is greater than the interest paid for the year. And my investments have done quite a bit better than 8% for the last 3 years which makes that money even more valuable invested than paying cash.

We look at the principle portion of the monthly payment as a payment plan for the current years vacations (kind of what I think Diane was getting at in her response). If we're earning more on the investment income than the interest we're paying Disney, and we consider the principle on the loan a vacation pre-payment (because we'd still be going to Disney if we weren't in DVC) doesn't it make sense?

Don't get me wrong. We can afford the monthly payment. I think going into huge cc debt is a mistake. But I do think there are times when financing a purchace isn't a bad thing. I also know that we could put that $200/month into more investments, but kind of echoing what DrT says, I could also die tomorrow and never get a chance to see my kids faces light up as we watch the Hoop Dee Doo review for the 8th time.

Am I wrong or wouldn't this be a good reason to go into debt?

 

[snowbunny]

Steph: Only you know your spending habits and what you will be comfortable with. I get really sick of the preaching regarding money and how other people think you should spend it.

Well, she did ask...

 

[pickles]

well,
we were planning a trip again this year anyway. So, we applied that money towards our DVC, and extra money i earn with my business goes towards paying it. You figure we bought resale so closing is a few weeks further out than some folks. If i dont have enough extra saved by then, we will "borrow" the 401K which pays directly back to it every paycheck with interest paid to us. That we will have set up to pay off within a year. This is how we managed to have our first disney trip last year. that loan is about 95% paid off now.
This year may be a money crunch, but long term it will be a "savings" to us and if it isn't a savings it will certainly return to us emotionally.
I wouldn't wait too long as prices only go up and you plan to go again anyway. why waste money on something you wont 'own"
I think financing is different if you didn't have savings or were risking your house for it or something, but in your case if you can put some down and pay off in a year or so, you aren't hurting anything , you are borrowing from future trips you would have paid for anyway

 

[byoung]

Buy now renting for cash is only making you put out more.

 

[Mickey Fliers]

Another reason not to finance...

All of those interest charges could have been MORE POINTS !

 

[2Princes2Princesses]

Well, she did ask...

Yep....I went into this thread eyes open....I did want ALL the advice, whether it was what i wanted to hear or not.

I do know, though, this is something I have to work out on my own in the end. I definitely will NOT be financing for the 5 or 10 years, for sure....the 1 yr is what we are kicking around now.

I will make sure to let you all know when we "come home"

And an aside about that phrase.....when we were at the guardshack on our check in day and he said "welcome home" I cried. I cannot imagine what I'll do when we own!! LoL

 

[Nanu57v]

I agree what wdw lover said. I like to consider DH and I responsible credit users as well, which is why I refused to have us rent. I couldn't stand the thought of us throwing money away every month, where in a mortgage at least some of it is going to principle PLUS the interest is tax-deductible. We got a 10 year mortgage and paid extra most months to pay it down quicker. Our ten year mortgage was only $200 a month more than what people rent these houses for. Plus, the value of our home has gone up $15,000 in the four years we've lived here! We recently decided to stop the extra payments to start saving to be able to pay for a car in cash (which isn't tax deductible.) We don't have a balance on our credit card, we pay it off every month. Tax is also deductible on the DVC financing too, and you have to think of where your money would work best for you. Maybe talk to a financial advisor? Its good though that you strive to be responsible with your money. I'm shocked to hear when co-workers have 8,000 credit card balances. And that's normal!

 

[Dean]

I would agree that one should generally not buy a luxury item like DVC other than with cash. There may be exceptions like guaranteed cash coming in so one could pay it off in a year or 2. But the point is frequently made that some people just can't get it together to save any money and they could not buy otherwise. IMO, that is a cop out and those people definitely shouldn't buy something like a timeshare on credit.

 

[WDW LOVR]

As an aside about that phrase.....when we were at the guardshack on our check in day and he said "welcome home" I cried. I cannot imagine what I'll do when we own!! LoL

While I've never cried, hearing that phrase puts the biggest smile on my face each and every time I hear it.

In March my wife and I took an unplanned long weekend trip to WDW (see trip report it you want to read more). We didn't have any points available to use at a DVC resort but we do have AP's so we got a nice AP rate at POFQ. I told Laurie the one thing I was going to miss staying there was hearing someone say "welcome home". Well, this is what an awesome wife she is, about 5 minutes after getting to our room there is a knock on the door with a package for me. It's had 2 DVC mugs, a DVC alarm clock and a couple of oranges in it. Laurie had them put "Welcome Home" on the card. Man that made my day!

 

[jodifla]

Guess I'm the odd man out. We financed our purchase in '96, and don't regret it for a second. By the time we had the money socked away, the points would have been much higher than we got them for, which was around $65, I believe.

We paid it off in 5 years, and treated it just like another car payment. But this car, we get to use for almost 50 years. The financing payments were low, and we bought while we had two incomes and no kids. Now that our financial and child circumstances have changed, we have a paid off timeshare that we only pay dues for. We can treat friends and family, and we can have terrific accommodations for a fraction of the price.

If you're going to hand Disney a big hunk of your money anyway, you might as well get something you can use year after year.

 

[shantay1008]

Steph, you mentioned that you get a tax refund and put that in savings every year. Could you adjust the amount of your withholdings so you get more cash in hand every month and use that to help pay for DVC? It's taken some tweaking, but we've finally managed to get our deductibles/withholdings lined up correctly so we're not giving Uncle Sam an interest-free loan every year! (I used to get excited about tax refunds until someone explained the situation to me... )

Dr. Tomorrow, you were wonderfully eloquent on the subject of enjoying life responsibly, and Bongo, I always respect how you try to be a voice of financial reason, which isn't always easy on here when we always want more trips, more points, more mouse.
Shannon

 

[Disney Doll]

Well, I'll be the voice of dissent here.

I think you should do one of two things. Buy a small resale that you can afford for cash now...get enough points to give you Sunday Through Thursday in a studio in the resort of your choice, in the "season" of your choice. There is a table on here somewhere that you can plug dates into that will give you point calculations.

However, you seem very finiancially anal retentive, and I don't mean that in a negative way. It would seem to me that if you bought what you wanted now, using Disney financing and getting whatever incentives they are offering now, you would be able to use your financial savvy to pay it off quickly.

DH & I bought our first contract in 1997. It was a 200 point contract, we financed it with Disney's 10 year loan, we paid it off in about 3 years, and during that time we were also paying all other bills including a mortgage & some big $$$ for infertility treatments and saving some $$$ for retirement as well. He's a realtor and I am a nurse, so we had pretty "normal" jobs...nothing that was bringing home a six figure income from either of us.
Amazingly enough, even with the financing, we survived just fine, enjoyed DVC for probably 3-4 more years that we would have if we had waited till we saved the cash and got the points for a cheaper per point price than we would have had we waited.

Now it is all paid off, we bought a second contract for cash, and are loving it.

If you have a pretty decent financial head on your shoulders...which you seem to... financing it shouldn't be a huge issue for you.

 

[bongo59]

surviving just fine is OK for you but for good financial well being and increased margin of safety...............never financing a luxury is the better advice................my point here is that financing a luxury is always a poor decision regardless if you make it work for your family................it is just sound advice.............and i would hate to see anyone who reads these fine boards get into trouble..................as i have said here many times i have made alot of money of of folks who finance first on any and everything and forget good financial principles................i have bought over 3000 points from people in financial distress over the last 15 yrs so I know it happens many more times than people who pay themselves first.................I will always give the same advice.............because it never fails to deliver....................whether they like it or not.................

 

[Disney Doll]

Well...I would agree that if you are a person who is not good with money, then you have to be careful.

I don't get the impression from the OP's initial post that frivolous with money is a phrase that would be used to describe her, and she seems able to keep her DH in "check" when it comes to money.

Life is not all about accumulating money. It's about enjoyment, and making reasonable decisions. I have known many folks who heirs were very happy because they got big inheritances to spend from their relatives who never did anything enjoyable because they were "saving".

 

[Cruelladeville]

The OP was very clear that she deals responsibly with debt. I don't see what the difficulty would be if she financed for a year. She seems very focused on paying things off now!!

I also financed my first contract, and I don't regret that at all. I was able to pay cash for add-on's, but financing allowed me to get my foot in the door. And the cost went up from $56 to $65, too, right after I bought.

What I do wonder about, though, is this: if you can get a room cheaper than renting pts, why do you want to buy DVC? Assuming that you will always be able to get that discount, I am not sure that DVC would be a good value for you. You really need to run the numbers to be sure that DVC is for you.

 

[dvc at last !]

If you can afford to buy a small contract to use for your vacationing - do it !
It will pay for itself (instead of paying for each night on vacation). You can always add on later.

 

[2Princes2Princesses]

What I do wonder about, though, is this: if you can get a room cheaper than renting pts, why do you want to buy DVC? Assuming that you will always be able to get that discount, I am not sure that DVC would be a good value for you. You really need to run the numbers to be sure that DVC is for you.

Well, the discount is through my cousin, a CM. So, first, she may not work there forever, and second, even if she did, Disney may not extend such a discount forever, except possibly only to immediate family. Also, renting points at $11 a point would be more than the highest discount, which is 50% off rack rate. However, that is not always available. As with other discounts, they only offer a limited amount of rooms at each tier, 50%, 40%, 25%.

Actually, that is how we fell in love with SSR. We were staying on her discount in 2005 and were going to stay at POR. The only rooms at the moderate level with a CM disc were for 25% off. We were able to reserve a studio for the same price at SSR, because they were still offering 40% off at OKW and SSR. We stayed and LOVED it.

And taking the cost of the # of points we would buy, divided by 48 years, add on dues, and it is still cheaper to buy DVC, even at 50% off rack rate. We would also hate to not buy in now, she leaves the company in 10 years, and points are $150 each!!

Anyway (much to bongo's dismay, I am sure...sorry!) we are going to go with financing for 1 year. We are looking to be "home" by the end of summer!!!

And we love our guide, BTW. hehe

 

[dianeschlicht]

I think you made a very good decision! CONGRATULATIONS! Hope you come back and let us welcome you home when you finally get your points!