Going Dutch: Financial Fitness Message of the Week (28)

What if I were to offer you a chocolate covered hand grenade? You’d be pretty foolish to take it, right? It may look and taste good on the outside but we know that deep down it is dangerous. The same can be said about foolish loans.

Marketing companies are very good at “sugar-coating” the terms that lenders use in order to attract buyers who have no self control. These buyers want to purchase something right now rather than doing it the right way and saving for the purchase.

Have you ever heard of any of the following terms?:
– Title pawning
– “Ninety-days-same-as-cash” loans
– Payday loans
– Rent-to-own plans
– Layaway debt

Chances are, depending on where you grew up, these were marketed to you. Most people think these are good financial choices, but the truth is that they are a bad idea, even dangerous. Most purchases made this way will end up costing the buyer 2-3 times what the item is worth, and more often than not, the buyer is still making payments long after the item they needed to have right then and there is sitting by the curb waiting for the trash man.

They are the chocolate covered hand grenade.  These are the financial fitness equivalents of chocolate candy bars and cotton candy. They look good and taste good (especially the cotton candy), but they are bad for you. They are not even really financial food; they are fake finances, and they get you into more trouble every time.

PRINCIPLE 28: Never use title pawning, “ninety-days-same-as-cash” loans, payday loans, rent-to-own plans, layaway debt, or similar schemes.*

Avoid these like the plague! Find other ways, or deny yourself. If you really want an item, do it the right way – SAVE FOR IT. And I would even go a step further and recommend that you practice delayed gratification. This is when you not only save the cash for the item but you set a personal improvement goal for yourself, and let the item be the reward for hitting that goal. Find something that fires you up, save for it, and let it drive you to become better.

Now, we understand that sometimes you simply have to use credit, for example, when a child gets sick or is hurt and you don’t have your emergency fund built up yet. In such circumstance, you may need to use your credit cards. But even in such circumstances, these “pawning” loan kind of schemes should be totally avoided.

*Principle from Financial Fitness: The Offense, Defense, and Playing Field of Personal Finance