Why would you charge something on CC you couldn't pay off in 1 month?

[heathrow42]

Someone please explain this! I was just reading another thread where someone posted about 'financing' DVC on their credit card, because the rate was lower then the DVC lending rate.

I can't understand charging something you couldn't pay for at the end of the month, unless it were a real emergency and either you had no savings, or you couldn't get to it. (ie. water heater, refrigerator broke, need car repaired to get to work etc.)

I just don't understand.. if something really awful happened, like you lose your job, you have no savings left, and your car breaks down. You're going to have trouble paying your credit card bill.. for something like DVC, which is a want rather then a need. I know this is thinking negatively.. but you just don't know what is going to happen.

Oh well, I'm the girl that yelled at the TV when Oprah had on all those people with severe debt a couple of months ago. I couldn't understand how the couple that had $92k in debt even got there, and why the lady wouldn't stop shopping. She felt entitlted to shop because her husband left her alone, went out and worked all day and had a new truck! Get a job! was all I could think, make money and keep yourself busy.

Oh well, I guess it's all the years of my MIL saying column A, and column B. Column A is all the things that are needs, food, shelter etc. Column B is all the things that aren't needs, and there you have to choose what's important and what's worth it.. I guess people get confused.. you may need a car to get to work, but you don't *need* a new $40k truck.

--heather

 

[tarmand]

I'm not trying to be mean, but what does it matter to you how that person paid for their DVC? I don't generally charge more than I can pay off in a month, but if I needed to, I would. Just because they charged something that couldn't be paid off in one month doesn't mean that they can't afford it. My husband was laid off for 5 months and we did just fine on my salary. We have a house note, a truck note, and a boat note. We choose to finance large items and keep our money in our savings for emergency situations. I know we pay interest, but that is how we choose to do things. It's probably not the best way, but it is our way. I don't think you should judge someone for how they manage their money as long as they aren't asking you to pay for it.

 

[ksoehrlein]

Just to clarify, our purchase of DVC was something we planned to finance. I know this is the Budget Board and "finance" can be considered an "f-word" here, so please just accept that this is something that worked for my family, but as with anything else, your mileage may vary.

The logic behind our decision (since you were curious enough to ask) was that we could either get a loan from Disney at 9.9% or we could get a "loan" for 4.5%, which is how we treat that credit card expenditure. There was a $0 balance on that card at the time of our DVC purchase and we have not used that card for anything else since then. Each month, we pay them what we would have paid Disney at the higher interest rate, so we will pay it off much sooner than Disney's projection. And we are sure to pay it on time, so we will not lose that 4.5% rate, which actually is now 1.9% now that we transferred to a different credit card.

The point I was trying to make on the other thread was that for tax purposes, a DVC loan is considered consumer debt rather than a mortgage, so why not get the best interest rate, if you do indeed need/want to finance?

 

[SandrainNC]

I just want to know what credit cards are available with those great rates (4.5% and under)???

Thanks ahead of time for the info!!

Sandra

 

[perdidobay]

I don't see a problem with it as you could easily sell DVC for about what you pay for it. Not so with cars, clothes etc.

 

[zurgswife]

I did it twice....I had 0% on my CC so I just used it instead of a bank loan and I could pay it off when ever I wanted too.....If I had to get a bank loan...for the short time it took for me to pay it off I still would have paid more for the bank or disney finance interest.....

 

[CarolA]

Why do you care?

I am sorry but if they asked for your advice it would be one thing. However, it sounds like you are passing judgement on a situation you don't really know much about.

Everyone has to make thier own decisions, what is right for you might be wrong for someone else.

 

[disneysteve]

I think the OP is actually asking 2 totally seperate questions.

The first was a specific example of using a CC to finance a large ticket item, in this case a DVC purchase. It totally makes sense to use your CC if the interest rate on your card is lower than the available financing rate the traditional way. Same is true when buying a car or any major purchase. Why pay a bank 9% when you can pay the CC 4%? I think ksoehrlein made a brilliant decision to finance their DVC purchase that way and likely saved themselves thousands of dollars in the process. This is one of many little financial tricks that help the rich get richer.

The second question is one I've often wondered about myself. How does someone allow themselves to get tens of thousands of dollars in debt with no means to pay the bill? She gave the example of a couple with $92,000 in CC debt from over-shopping. How can someone possibly go out and keep buying stuff when they know they have no money? I'm baffled every time I hear stories like that on TV or in financial magazines or here online. When my wife or I go shopping, we buy what we can afford. If we can't afford it we do one of two things. Either we don't buy it and make do with something cheaper or we save up for it and buy it when we can afford it. We always pay for virtually everything with a CC because its silly to use cash and pass up the reward points, but we pay the bill in full every month.

Just to be clear (and avoid flames), I am NOT referring to people who ended up in debt due to tragic or unforseeable circumstances like medical bills, death of a spouse, etc. There are some times when accumulating debt is simply the only possible way to get by. I'm only referring to people who willingly spent their way into debt.

 

[brivers222]

Just to add also, You sometimes get better incentive using a Credit Card to Finance items (if you can get a lower rate). Take for instance paying off part of your DVC on your Disney Visa.

The Lending rate via Disney Vacation Club is 9.75%, My Disney Visa is 1 % less than that. I ended up putting a heft Downpayment down on my credit card at the low rate AND also received $30 Disney dollars.

Even If I was to put my entire DVC payment on my Credit card (if my limit was high enough) the minimum payment isn't any different than what DVC is asking me to make every month right now.

You are right losing a job or running on tough times it would be hard to make your payment... but that is something that would be the case for anyone losing a source of income indefinetly.

I highly doubt a lot of people on these lists actually have all their cars and houses paid off (just incase they lose their job) it is something I would never wish on anyone as it would affect someone greatly.

I say live life in the now and spend your much deserved money, because who knows what the future will bring especially in todays world!

 

[arminnie]

I bought DVC and paid it with my Disney Visa CC and got Disney reward dollars. I was going to pay it off, but BofA offered me a credit card with 0% interest on balance transfers for a year.

To me that was a no brainer - even though savings interest rates are very low (2.2% with ING) that is still greater than zero.

For a $15,800 purchase that's $158 on my Disney Reward card and over $300 in interest income (for money left in savings for a year).

If you use the argument that you shouldn't borrow money in case you lose your job - then you would never be able to buy a house unless you paid cash. House payments are usually much bigger than any other type of debt.

 

[swilphil]

I find that people usually have good reasons for doing things, and I'm not in a position to pass judgment. Some people are irresponsible with their money, but a lot of that has to do with lack of knowledge. The credit card companies also often encourage people to get into debt because they make more money that way.

 

[ILOVEPOOH1]

I agree! She made a smart move. When I bought my car it was financed at 6.5%. I transfered that balance to a CC at 1.9% and paid off the car in 1 1/2 years instead of 4. When you get a deal like that it's smart not to pass it up. You'd end up paying a lot more in the long run if you paid the higher intrest rates. Also most CC companies now have a sort of insurance, if there is a death, loss of job or divorce, they will let you miss a payment or two with no penalties. At least I know my CC companies do this. SO do a lot of store card like Sears! Anyway, most of us just do not have thousands of $ incash laying around for big purchases!

 

[ajksmom]

Some people "finance" purchases through their credit cards because it an option to them. As long as people know up front what the entire purchase cost (price of item and finance charges) will be and they feel it is worth that "price" to them, there is nothing wrong with purchasing this way.

I will give you an example - My DS18 wanted to purchase a new quad. He had worked and saved his own $$ for the down pmt. An offer I had from one of my CC's beat Suzuki's financing (3.9% vs 6.9%). I showed him how to calculate the finance charges using both options. He choose to finance through my CC. IF he had made the minimum pmt only, he would've paid 495. in interest and had pmts for 51 months. He understood that this option cost him an additional 495. above the purchase price. We made him keep 1 years worth of min. pmts in the bank in case of emergency and he got his quad. Now what he DID was to pay more than the minimum pmt. and will make his 17th and final pmt in March 2005. His total interest cost will have been $170. If he had saved his pmts and paid cash he'd have waited 34 months to purchase it.
$170 "spent" to have it almost 3 years earlier was worth it to him.

CC's are here to stay and the "smart" use of them affords people the same "luxury" that mortgages and car payments have always done.

 

[crisi]

I know a lot of people finance DVC - but conservatively speaking, I think DVC is one of those things you should have cash for. If you choose to finance it, and keep the cash invested, that's great. But at any given time you should be able to liquidate something and get DVC paid off.

But I'm pretty low risk when it comes to money and HATE debt - so I'm probably pretty unusual. Financing DVC - which is an asset you can sell, makes much more sense than financing a Disney vacation, which plenty of people do as well.

But financing DVC on a low interest card can make financial sense - if you aren't as risk adverse as I am. Even with financing, DVC can save you money if you are a regular Disney vacationgoer. (Not us, we just spend more now on nicer rooms - but its a "value" to us to have the kids sleep in a different room). You might as well start saving that money now by financing at a low rate. Just remember to read the fine print and know when, if and how the rate will kick up. And, if you do lose a job or need the money, two years later I can sell my DVC for what I bought it for (including a comission to an agent) in about 30 days.

 

[SWVA BGSU Fan]

There are a couple of issues that haven't been addressed that should be discussed when using a credit card to make large purchases.

First, if a person overlooks a payment or has a hardship that causes a payment to be 30 days late then the credit card company can (and often does) change the rate to a very high level.

The second area of concern is the effect of a large credit card balance on your credit report. Many lenders have 2 scores that are reviewed for applicants. The first one is the beacon score which isn't affected too much by the presence of large revolving debt as long as payments are made on a timely basis. The second and little known area is the BNI score which is basically a predictor of potential bankruptcy. Large credit card balances will drive this score low and can make it difficult to obtain additional credit.

I understand the desire to finance at the lowest possible rate. I just wanted to point out potential problems using the credit cards to finance large purchases.

 

[disneysteve]

Originally posted by swilphil
The credit card companies also often encourage people to get into debt because they make more money that way.

I have mixed feelings about this statement.

Ultimately, how much I spend and charge to my CC is my responsibility. The CC company doesn't drag me to the mall. However, I do think the CC companies grant credit too freely. College students are a perfect example. When a college student with no job and no income can apply for and get a cc with a couple thousand dollar limit, something is wrong. Now, of course, if the student goes out and runs up bills he can't pay, that's his fault, not the company's.

 

[crisi]

I know what you are saying Steve, but Phil did use the word "encourage." And I don't think anyone can doubt credit card companies "encourage" us to take on more debt.

No one forces you to use your card, but a rewards card, a low interest rate, something you really want now but won't be able to afford for a month or two, a society where "everyone" is in debt and carrying balances and where stuff is the measure of success, American optimism (tomorrow I'll win the lottery and be able to pay off all my bills, when I graduate from college, someone will give me a $50,000 a year job).....

 

[2Disneybuggs]

Everyone has a different approach to finances. Some may argue why should they pass up on something they really want when the world could end tomorrow? It's really a personal decision but it is good to educate people. I have a couple of Credit cards but each has very low interest rates. I say to each his own.

 

[Dopey Sharon]

Originally posted by arminnie
I bought DVC and paid it with my Disney Visa CC and got Disney reward dollars. I was going to pay it off, but BofA offered me a credit card with 0% interest on balance transfers for a year.

I did the same thing.

 

[disneysteve]

I'm curious. When you paid for DVC with CC, was there any added fee? Since the company has to pay the CC processing fee of 2 or 3%, it would seem they wouldn't want to accept a CC payment because it would cost them money.

The last two times we bought a car I asked to pay with a CC and was not allowed either time. I wish the car dealers would start accepting credit cards. We could rack up plenty of reward points that way.