Small Monthly Payments are not what they seem to be

Sep 6th, 2007 by David Murphy-Colonna | Scroll down for comments

Let’s face it, our eyes are usually bigger then our wallet. When we come across a large sum of money once in awhile, whether it is from working overtime, having a good month with our blog or business, or maybe even a passing birthday, our mind starts to wander from saving to spending, and suddenly retail stores are calling our names.

As the stores call and our purchasing dreams start to seem so much closer to reality, we start to look for the “best deal”. As we look for the best deal, which conventionally means the best price, a certain phrase enters that can give us the one, two punch in the long run without us even noticing.

That phrase is : “Low Monthly Payments”

In this era where high priced items such as an HDTV are a “necessity” in our culture “Low Monthly Payments” may not seem like a bad thing at all. What it means to the average consumer is, that I can buy this item, and pay a little bit off at a time leaving more money in my pocket now and over the course of the future, right?

Wrong! “Low Monthly Payments” Is banker and retailer talk for ” we are going to make a bundle on this loan, or payment plan.” Why else do you think they would make this so convenient? So you can get a good deal? No chance. they are trying to move the product and make money off interest.

Do not get low monthly payment confused with a low price tag, they are nowhere near synonymous.

What we should do is attack our debts and look to stray away from low monthly payment plans, they are not the way to go when looking for the low purchase price, which is the conventional way to shop.

Let’s take an example from Smart Money’s article: “Changing the Monthly Mindset” which shows a credit card debt that you can make the minimum payment on each month and pay off in a long term, but pay much more then you “actually spent”

“Say you’re carrying around that average American balance of around $9,900 on a car with a 15 percent interest rate. If you pay $250 per month,slightly more than the minimum payment, it’ll take 55 months to pay off the card; by upping the payment to $1,000, you can pay it off in less than a year- and save yourself more than $3,100 in interest.”

$3,100 in interest! Sure it was convenient for you to get the item, and I do think payment plans are necessary for mortgages and other large purchases, but $3,100 on a credit card bill is definitely not something paying for no reason.

So the bottom line here is that interest is your killer. And no, I am not saying it is easy to pay $1,000 a month but stretching or sacrificing your money to put a dent in those items you are making small monthly payments on will save you big time in the long run.

So next time you come across some extra money, before going out and putting a large lump sum down on an HDTV think about about getting rid of that credit card debt, because not only will that help rid of the credit card bill but will also save you from, having another “small payment plan” that the bankers love.

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David Murphy-Colonna posted this article under Personal Finance, Saving Money on Thursday, September 6th, 2007 at 9:45 am You can follow any responses to this entry through the RSS 2.0 feed. You can leave a comment or trackback from your own site. View Technorati Linkbacks.