Originally Posted by mnnice
I am going to respectfully disagree with much of this post. I have bought both a car and furniture in the past with 0% deals. I am far from convinced that is was a good idea.
The furniture deal introduced stress into the whole purchase that would not have existed and in order to be super sure that we didn't get assessed any interest we ended up paying it after 10 month vs the 12 months that we techinically had. It seemed like a lot of hassle to earn approximately $50 in interest. Our most recent furniture purchase was a bed and mattress from a small business that also made the mattress and has an Amish cabinetmaker make the bed. We paid with cash and got a discount of 5% on the purchase.
We also purchase a new vehicle with 0%. We had the cash to buy it outright, but we chose not to use it. We did buy a vehicle more expensive than I know either DH or I would have ever bought if we had had enteedr the car dealership with a stack of $100 bills. It was far from a terrible purchase and we still drive is 9 and 1/2 years later. Still not our smartest move. Also if you have the cash for a car or have excellent credit you are nearly always better off taking the higher rebate over the 0% financing.
Also anything purchased with a credit card has another layer of expense built into it. Using credit cards raises retail prices for both the people that pay cash and use credit. If you are dealing with a small business owner you nearly always get a better deal if you pay with cash (and ask for a discount). I have gotten cash discounts for lodging, furniture, food (both resturants, grocery stores, farmer's market). The "free" money from rebate cards are really not so free because they are reflected in higher costs for everyone. Statistically, people spend about 20 to 30% more when the pay with credit than they do with cash.
I also don't think paying cash makes you less inclined to invest and grow you net worth. If anything becoming less of a credit user has increased our rate of savings. I currently live in a place with some pretty depressed real estate and relatively low household income. The discipline to only buy a house with cash is keeping us from spending too much on a home. We would easily qualify to buy a house twice that median here. But overall that would be a crummy idea since the high end of the market moves at such a glacieral pace and we know we won't live here forever.
I don't think all debt is bad either. Both the student loan debt I took on and the 3 or 4 different mortgages we have had in the past have all worked out just fine for us. We also have a credit card that we do use one or twice a year just to keep it active. But mostly I think it is easier to be mindful when you use the green rectangular stuff. I also think there are lots of ways to "leverage" using cash that aren't available when you use credit. I do think there are multiple routes to monetary wealth and more than one way to do things. Living within/below your means is the first place to start regardless of what actual means you used to pay with it.
First of all, about the 0% financing on cars. I ran a calculation a long while back (after reading a particular financial planning book that I can't remember the name of right now) to see what is better... the rebate or the 0%. This involves investing, so there is a return factor here. Let's say over 25 years, you purchase 3 cars at the cost of $20,000 each. By using 0% interest, not taking that $20,000 to pay all up-front and keeping that $20K working for you each time you purchase a car, in the end, over that 25 years, buying 3 vehicles and gaining average returns, you are $42,000 ahead of the game. That is, each time you got a "rebate" on a car you purchase, you would have to get $14,000 taken off of the price to break even... over the LONG HAUL. Not immediately. You don't see those returns immediately. The returns take 25 years to accumulate. But when I am talking about using credit wisely to increase your net income, I'm not talking about today or 1 year from now or even 10 years from now. You have to look at the big picture. And for this picture...no, the rebate is not the best option.
And for us, it's a moot point because we don't buy brand new cars, which I personally think is not a sound financial move, anyway. That $20,000 car is worth about $16,000 (on average) the moment you drive it off the lot. You can argue that if you keep it 'til it dies, then it's worth it, but the one thing you can't predict is if it gets totaled in an accident the first year. I had a colleague this happened to TWICE in one year. She bought a brand new vehicle, it was totaled in an accident just a few months later. She lost thousands on it. Turned around and several months later, it happened again when her husband was driving. Now in that accident he was badly injured, so they ended up with a settlement, but you can't predict these things. I personally think (based on calculations again) that the wisest move it to buy certified pre-owned and pay cash.
Making sound money decisions, especially when credit is involved isn't something you can just kind of figure out in your head if you're going to try to build wealth. And I mean BUILD wealth, not just idly save some money. There is a mindset and yes, even $50 makes a difference.
So while it may not WORK for you, it is a proven financial fact that utilizing credit properly *does* help one, who is savvy, to gain the financial upper hand in their lives. Yes mistakes can be made. Yes, the "profit" may not seem to outweigh the "effort". But to say it doesn't happen just because it didn't work for you... that doesn't make the principle false.
As for responsible people "paying 20% or 30% more" for something if you pay with credit. Please... show me the study. Credit is not going to go away. Just because *I* don't use it doesn't mean that retail prices are going to go down. I might as well get my rewards and cash back. When dh and I go out to dinner, the bill is going to be $80 whether we pay for it in cash or pay with credit. If I don't use my credit card that one time, they're not going to cut me any slack. If people pay 20% more because they don't take time to find a better deal, well that's just being financially irresponsible and they are probably going to be showing many more signs of financial distress that just paying more for something.
When you say that you get a 5% discount for paying in cash... that's no different than saying that they are upcharging for paying with credit. Of course, in those cases, you do pay with cash. However, that's all part of the plan of increasing your net worth. You have to evaluate these financial decisions on a case-by-case basis. And that was exactly what I was saying in my previous post.