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Ask Dave

12 Months Does Have Interest

Dave tells a caller than 12 months no interest is a lousy buy, for a few reasons.

QUESTION: Dave asks Dave what he thinks of 12 months with no interest. Are they good deals? Not by a long shot, as Dave explains. He also gives information on credit card balance transfers.

ANSWER: You are actually paying the interest 3 ways. First, you are paying through the inflated price. The second is doing something you don’t have the money to do, which is a little hard to prove mathematically, but we all know it’s there. The third way, which is straight up math, is that 88% of those types of contracts don’t pay off during the time and convert to payments with a finance company at ridiculous interest rates.

If you don’t pay it off in 90 days or 12 months or whatever, they it converts to payments and, according to the contract, they have the right to backcharge you through the whole time at the high interest rate, and that happens 9 out of 10 times. The one guy who pays it off is not where they make their money.

A friend of mine had the money to pay it off, but didn’t pay attention and ended up being charged 28% because he didn’t pay it off in time. Someone called into my radio show who bought some stuff at Best Buy. They didn’t want the extended warranty but did the 90 days same as cash deal. The salesperson makes money off the extended warranty, so he signed them up for it even though they didn’t want it. So when they paid off the balance, they still owed the extended warranty money. Try fighting with Best Buy for 8 years over that stuff.

Life’s simpler if you just pay for stuff. Now, when it comes to something like balance transfers on credit cards, but that’s not ultimately what gets you out of debt. What gets you out of debt is getting mad and getting 6 extra jobs, selling stuff and sacrificing is what gets you out of debt, not the interest rate. However, if you want to get a zero interest rate while you’re getting out of debt, I’m all right with that. Just don’t spend 90% of your time doing balance transfers and 10% of your time working.