Why is financing so disfavored for DVC on the boards. . . and for that matter, why do so many judge those who use it

[Dean]

I'd also add that you are not spending more than you would if you were paying cash. That is a place where the consumer is "gotten". They buy something when paying with a CC that they would not have purchased having paid cash. If you avoid that pitfall, i say take the rewards!

Statistics show you spend more on average using a CC, I think the last number I saw was 14% more. Of course since this is DVC related, going on vacation is not an entitlement.

 

[kniquy]

There are ok ways to finance and then there are poor ways to finance. There are some who choose to finance, BUT have the disposable income, the means and discipline to have it paid off in a couple years or less. Then there are those who finance at the absurdly high interest rates and plan on only making the minimum payments -- thus accruing a lot of interest. This is a luxury item and not a necessity in life so if you really can't afford it to pay with cash or have it paid off in a couple years then maybe it isn't the best financial decision.

There are also be variations in the decision to finance a direct purchase or financing a resale. Both are about the same interest rate so in the effort to save some money it would certainly not make sense to finance a direct purchase but financing a resale with plans to pay off quick can make sense.

Prime scenario here is my recent resale purchase (closed this month). I bought a poly 100 point contract resale. The owners from whom I was buying it from has just bought in June 2017 and had put it on the market in September 2018, so just a little over a year of owning they wanted/needed out. When i put my offer in the agent mentioned they had a mortgage on it (which I did see on the OCC) they financed their whole purchase (minus the 10% down) so with only making the standard monthly payment they hadn't paid off much and needed to get enough selling their resale to payoff the mortgage and to walk away not owning more out of pocket. This is a situation where financing a direct purchase for a large amount can put you in a pickle of wanted to get out, but possibly owning more than what you can get for the contract on the resale market. This will be a real eye opener for anyone financing the whole amount of a Riviera purchase and having to sell -- many will find themselves upside down.

.

 

[we"reofftoneverland]

Statistics show you spend more on average using a CC, I think the last number I saw was 14% more. Of course since this is DVC related, going on vacation is not an entitlement.

I believe this is true, especially for luxury or “fun” purchases. We use the Disney visa for all grocery purchases and get the 2%. (We have not paid one dollar of interest on that card which we have had for about 7 years. Knock on wood. Lol). I do not think we overspend or impulse buy much at the grocery.... but Disney scares me, so we do not use the card at Disney. We buy Disney gift cards every month at Kroger (still get the 2% rewards we would get at Disney because it is the grocery plus fuel points), and we use gift cards at Disney. We budget a certain amount, end of story. We usually have extra gift cards at the end. One thing we do is schedule a couple of table service meals throughout the visit and as the vacation goes on, if we feel like we have spent too much so far, we cancel one towards the end.

 

[we"reofftoneverland]

I’m not a Ramsey fan by any means, but I think for his particular audience, his approach to debt is good. People tend to turn to Ramsey because they can’t control their finances / debt. So when you’re in that situation, then swearing off all debt is the right choice. Being debt-free has to be a way of life, otherwise you will get sucked in the debt spiral as you say and then you will never recover.

If you have control over your finances and understand the consequences of your debt, then using debt is not universally bad, just something that has to be taken carefully.

I also think a lot of his fans are learning. We had to learn too. Lol. We found him after we figured a lot of his message on our own, and it was great to hear someone else say it. He really is a great voice of reason overall for this country. But that is just my take on it.

 

[Dean]

I also think a lot of his fans are learning. We had to learn too. Lol. We found him after we figured a lot of his message on our own, and it was great to hear someone else say it. He really is a great voice of reason overall for this country. But that is just my take on it.

There is a member of this board that made the statement they financed EVERYTHING at EVERY opportunity and wanted to argue this was a smart plan. They later came back and had made a complete 180 and were on the Dave Ramsey Plan. If you don't understand what the gold standard is you won't know how close or far off you are. Part of the problem is many want to argue about what if you're close but not 100% then use that as an excuse to make bad choices at every turn. If people made great choices, were set for college, retirement, etc and financed a timeshare, who cares. But that's not where people are looking to finance a timeshare, usually they're living month to month. They don't ask how much, they ask how much a month (code for I can't afford it). Will some of them survive the Russian roulette? yes but some won't. My suggestion is to buy things you can afford (pay cash) and avoid the risk and stress. We've seen many examples on this board of bad outcomes the could have been avoided including financing that ended badly or non marriage partnerships.

 

[jerseyduke]

Statistics show you spend more on average using a CC, I think the last number I saw was 14% more. Of course since this is DVC related, going on vacation is not an entitlement.

Interesting, I never knew the number - at least in a broad market sense, but I did run a retail place for years, and any way I calculated that number internally(which did require some assumptions), I came up with the same conclusion: The profit from added sales far exceeded the credit card transaction fees.

So, even paying no interest, CCs can easily take money out of your pocket.

 

[CanadaDisney05]

This is a very narrow point of view.

What really matters is NET WORTH. Debt is a tool that can be leveraged for good. As long as you maintain a positive net worth, there is absolutely nothing wrong with carrying debt. Literally every successful individual and company carries debt, because there are financial benefits to doing so in most cases.

This is true, but only if you are using the debt on an income earning asset, where the earnings are greater than the interest expense....DVC may be one of those items for a family that travels regularly to WDW and pays for deluxe accomodations....DVC is not one of those items for a family who is looking to use DVC as a way to upgrade their vacations.

 

[CanadaDisney05]

Just to play devil's advocate, I reccomend avoiding a brokerage due to their high fees chipping away at growth.
An index fund in Vanguard is very safe as far as investments go, and offers a good amount of growth potential.

If we're going to get into this here, I think it's important to spell out that index funds are relatively safe over the long term (atleast 10 years). They do have heavy volatility, so if you may take some or all of the money out in less than 10 years time, index funds can be every bit as dangerous as investing in a single stock.

 

[Dean]

This is true, but only if you are using the debt on an income earning asset, where the earnings are greater than the interest expense....DVC may be one of those items for a family that travels regularly to WDW and pays for deluxe accomodations....DVC is not one of those items for a family who is looking to use DVC as a way to upgrade their vacations.

I think that's the problem here. Usually when this comes up people want to use the exception to prove a rule that doesn't apply. Most people who do no interest for 6 months end up paying interest. Most people who plan to use a CC for emergencies only or pay it off every month don't do so. But the risk is variable. I use a CC and pay it off every month and have for over 30 years thus with no debt and that history my risk is far less, esp since I have the funds to cover things in savings if needed. But there is some risk regardless. Effectively if you have debt and buy something you don't truly need, you're financing the purchase by not applying that amount to the debt, it's the same effect math wise. My personal goal though is that people understand the risk, understand the best practices then make their own decision. But the fact they made a given decision and they feel it was a good one doesn't automatically make it so. If we don't talk about a standard, many will never know what it is.

 

[Ben E N]

If we're going to get into this here, I think it's important to spell out that index funds are relatively safe over the long term (atleast 10 years). They do have heavy volatility, so if you may take some or all of the money out in less than 10 years time, index funds can be every bit as dangerous as investing in a single stock.

Expecting any stock fund to show growth in only 10 years is a risky idea. If you are really looking for that short of a time frame, government bonds are the only safe route to follow.

 

[Disney Dad ADL]

I think that's the problem here. Usually when this comes up people want to use the exception to prove a rule that doesn't apply. Most people who do no interest for 6 months end up paying interest. Most people who plan to use a CC for emergencies only or pay it off every month don't do so. But the risk is variable. I use a CC and pay it off every month and have for over 30 years thus with no debt and that history my risk is far less, esp since I have the funds to cover things in savings if needed. But there is some risk regardless. Effectively if you have debt and buy something you don't truly need, you're financing the purchase by not applying that amount to the debt, it's the same effect math wise. My personal goal though is that people understand the risk, understand the best practices then make their own decision. But the fact they made a given decision and they feel it was a good one doesn't automatically make it so. If we don't talk about a standard, many will never know what it is.

Right, if you have a home mortgage @ 4% interest on your house and buy DVC with cash, you are still effectively financing DVC at 4% by borrowing against your house. You are financing your lunch at 4%. Your Mickey ears are costing you 4% interest. Many people are financing things all the time, it’s just important to know the risks, though the risk of debt is usually much higher/serious than we give it credit for.

 

[Dean]

Right, if you have a home mortgage @ 4% interest on your house and buy DVC with cash, you are still effectively financing DVC at 4% by borrowing against your house. You are financing your lunch at 4%. Your Mickey ears are costing you 4% interest. Many people are financing things all the time, it’s just important to know the risks, though the risk of debt is usually much higher/serious than we give it credit for.

Exactly my point, understand the situation and risk and be a grown up.

 

[Dean Marino]

Probably off topic, as it has to do with CC debt?

There is a way to WIN with this. In our case, a no-fee Cap1 card. 1.5% cash back. We put EVERYTHING on it (food, medical, etc). Chase has a similar offering.

We pay this off every month . Over 10 years? We've MADE about $400 per year. Never paid a dime of interest. We still don't know why Cap1 has not just kicked us out . Really - they have GIVEN us about $4000 .

 

[Ben E N]

Probably off topic, as it has to do with CC debt?

There is a way to WIN with this. In our case, a no-fee Cap1 card. 1.5% cash back. We put EVERYTHING on it (food, medical, etc). Chase has a similar offering.

We pay this off every month . Over 10 years? We've MADE about $400 per year. Never paid a dime of interest. We still don't know why Cap1 has not just kicked us out . Really - they have GIVEN us about $4000 .

I do something similar, but found the math worthwhile to pay the $60 a year to get 2% back. They can do it because they charge retailers 2.5% or so to use the credit card, and the retailers are happy to pay the fee, because as was pointed out, we are more likely to spend up to 14% more just by using credit cards.

 

[Brancaneve]

There is no right or wrong but the bottom line is that a Disney vacation is much more enjoyable before, during and after a trip when it is fully paid for.

 

[MooseBucks]

Because math. Not judging, but I went to a lot of trouble to convince myself that even a resale contract made any sort of sense financially. A direct contract with financing? I'd be out for sure.

Well said

 

[Chuck S]

Well, for everything in life is it usually always better to pay cash, if you can. But when we bought DVC in 1992, we did a 3 year finance with Disney so we didn't have to pull funds from other income generating investments. Plus cash isn't always a viable option tax-wise. If you have to sell off assets/investments you may be subject to capital gains, so financing could be a much better option. There's nothing wrong with financing, per se. as long as it is done for the right reasons. LIke I have 4 mortgages on rental properties as a business expense.

 

[CanadaDisney05]

If you have to sell off assets/investments you may be subject to capital gains, so financing could be a much better option.

Financing has no implications on the amount of capital gains tax you pay.

 

[crvetter]

Financing has no implications on the amount of capital gains tax you pay.

I think the comment is if you are paying long term vs short term capital gains on selling your assets. So if financing for a short period avoids having to sell an asset which would trigger a short term capital gains tax that would be quite the hit depending on your tax bracket. Though bridging the cost through a short term finance you could sell that asset once in the long term range (or wait until you have net losses to offset the gain) and come out ahead with financing. But as everyone says the analysis really shouldn't be about a single aspect of your finances but should be the entire financial picture.

 

[jerseyduke]

Probably off topic, as it has to do with CC debt?

There is a way to WIN with this. In our case, a no-fee Cap1 card. 1.5% cash back. We put EVERYTHING on it (food, medical, etc). Chase has a similar offering.

We pay this off every month . Over 10 years? We've MADE about $400 per year. Never paid a dime of interest. We still don't know why Cap1 has not just kicked us out . Really - they have GIVEN us about $4000 .

Capital One may have given you 4000$. But the merchants paid $8,000 in credit card transaction fees. You like it because you got 4000$. Capital one also netted the same, they like it just as much as you!. (Merchant fees do vary, i guestimated 3 percent, It could be a little less, a little more)

They made money by having you as a customer, just not directly

Financing has no implications on the amount of capital gains tax you pay.

But selling an asset does have an implication on WHEN you pay them. Might want to defer paying them.