Same as cash credit cards can change your world. Today. Many people use credit cards to pay for things that they cannot really afford. Credit cards let us be indulgent, buying things now and making payments on them. Of course, unless you have a zero APR credit card this is never a good idea.
Too often people get in over their heads, buying things they cannot really afford simply because credit cards make it possible. Financial gurus Suze Orman, Clark Howard and Dave Ramsey all recommend that you not carry a balance on your credit cards.
But is there ever a time when carrying a balance might make sense? Well, maybe, if you are buying something you need, with no interest.
Many credit cards, especially store cards, are now using marketing ploys that they call “buy now and pay later” or “same as cash” to get you to buy their products. For example, home superstores Lowes and Home Depot both frequently run specials on their cards allowing you to make major purchases (usually over $250) and then finance these purchases for 6, 12 or even 18 moths with no interest. Many appliance and electronics stores do this as well.
But is this a good idea? It all really depends upon you.
Let’s say that your stove dies and you really need a new one but you just don’t have the cash right now. What are your options? Spend a fortune eating out every day? Pay through the nose for a payday loan? Or, use your store credit card which has a special offer that will let you buy your stove and have 18 months to pay it off without paying a penny’s worth of interest?
A same as cash credit card can be a great deal, giving you what you need with no extra expense. In fact, you could even make a planned purchase in this way, using the money you would have spent to do other things for those interest free months, like earning interest in a CD.
But there is one super important thing you need to know before you go buying same as cash with a same as cash credit card.
Most of these offers have a secret catch that you don’t know about unless you read the fine-print or have been burned by it before. That is that if you do not pay off the full balance by the end of the promotional period you will probably have to pay all of the interest from the day you bought the product. So, a 90 days same as cash credit card means that you had better pay that off in 90 days. Or else.
Let’s explain this clearly. Let’s say you bought a new refrigerator for $1,800 on January first. You have an 18 months same as cash credit card, meaning that you don’t have to pay a penny in interest for the next 18 months – not until July of the following year! What a deal.
Now, you make the payments, regularly, and you are in month number 17. You still owe $300 on that fridge and you are a little short this month. So, you pay $200, figuring you don’t mind paying a little interest on a measly $100 and you’ll pay it off next month.
The next month comes and you get the statement. They say you owe not just $100, but $350! What the heck happened?
What happened is that you didn’t pay off the full balance before the promotion expired, so you were charged all the interest that you would have paid if there had never been a promotion in the first place. Many, if not most, promotional offers work this way. It works this way with a 12 months same as cash credit card. Or a 6 months same as cash credit card.
Buying on payments might be an acceptable way of financing a large purchase, like a new fridge or even a television. But be careful about financing a vacation in this way. Vacations are great, they can rejuvenate and build memories. But do you really want to be making payments years after you have returned from a trip? Probably not.
So what do you do? Well, in the above example it is too late; there is probably nothing to be done. But to avoid letting this happen to you it is imperative that you pay off the entire amount you charged before the end of the promotional period.
Most credit card statements will show you the promotions you have active so you can track them. But the best thing to do is to figure out the minimum monthly payment that you must make to pay that item off on time, and then make at least that payment each month. In addition, write the promotional expiration in your calendar two months before it happens so you can check and ensure that you will be paid off on time.
Do this and you those “same as cash” offers can be a great deal!
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