There’s no avoiding these offers. Everywhere you look, whether it’s online or offline, you see corporations offering to finance something for you: your car, your shopping cart, your meal, etc. Here’s what you should (and shouldn’t) finance.
Why finance anything?
We’d all obviously prefer to be able to pay cash for everything, that’s not always feasible. Inflation continues to chip away at your hard-earned money, which means that those of us who aren’t oligarchs have less and less buying power. Recurring expenses like food and fuel will likely continue to rise before they get better.
What you should finance
These are your stereotypical big purchases. I am not advocating that you get into debt, but real life happens.
Your house
This goes without saying. If people could afford homes outright, then they wouldn’t sign up for 30-year mortgages.
Your Legal Defense (caveats obviously apply)
There are innumerable situations in which you might find yourself in court. Use your best judgment here. Before you take on this financial responsibility, make sure you find out what happens to your debt if you lose the case.
Necessary Medical Procedures
American healthcare is a dystopian nightmare where people sometimes die trying to avoid taking on medical debt. Whether you have insurance or not, if you find yourself in need of emergency or necessary medical care, you could be on the hook for thousands to hundreds of thousands of dollars.
Do what you must to get help and take care of your body. There are many programs and options to deal with the debt later, including working with the hospital to get on a payment plan, negotiate down the bill and more. Your life is always worth more than any hospital or emergency care bills you may incur.
What you should avoid financing
Everyone’s circumstances are different, so there’s more wiggle room in this category.
Your education
BG veterans will know that I started my debt-free journey by paying off my student loans. Do I recommend student loans? No, but I recognize that it might be your only choice. Make sure you take advantage of as many grants and scholarships as possible.
Your car
Car dealerships are notoriously predatory, and public transportation isn’t always a reality in your area. Vehicles are depreciating assets, so it benefits you to get out of that loan as quickly as possible. Watch out for bad deals, and don’t let dealerships bully or intimidate you.
I’ve become a big fan of salvage cars, though you obviously have to do your research. Find out how I pay the absolute minimum on cars and car expenses.
How do I go about buying a salvage car?
First, you’ll need the cash on hand. A bank isn’t going to give you a loan on a salvage car. Be prepared to be flexible. You are buying someone’s previously damaged car at a discount, after all.
Second, don’t take anyone at face value. Take the car to a mechanic and have them check it out. You should also buy the CarFax so you can get as much history as possible about the vehicle. Read up on the car beforehand so that you know whether it’s coming up on any significant service issues. If reports say that the car needs a new transmission at 100k miles and the one you’re looking at is at 90k, then that’s something to consider.
Finally, trust your gut. If this doesn’t seem like the deal for you, then pass on it. Don’t get pressured into a transaction you aren’t comfortable with. You also shouldn’t be afraid to haggle, but don’t lowball.
Learn more about paying the minimum on cars here.
Repairs
This is what emergency funds should cover, but sometimes costs add up, especially with the current price of building materials.
What you should not finance
If the previous sections were an appetizer, then here’s the entree. Sorry, not sorry about some of these.
Appliances
I’ve had to go to laundromats. I can appreciate how much it sucks. However, I don’t advocate going into debt over a washer and dryer. People offload these things all the time on social media. The deals are there, and you won’t have to look too hard.
Living things
Don’t finance a pet or plant. If it’s a pet, you can save up for it. If it’s a plant, you can ask for a clipping.
Vacations
We all need to get away and recharge, but your cruise doesn’t need to be repaid with interest.
Renovations
Your new deck can be cash-flowed.
Elective Medical Procedures
As someone who wears glasses, I empathize. However, I wouldn’t ever go into debt for Lasik or any other cosmetic medical procedure.
Weddings
Bridezillas beware! You can save up for your dream wedding. Married life is stressful enough without having to pay for your wedding with interest.
Electronics
Cell phones, laptops, and game consoles have gotten cheap enough that you should be able to cash flow them. Don’t finance the newest iphone, please.
Daily life/Everyday expenses
This might seem like a strange inclusion. What I mean by this is living beyond your means. If you need to finance your daily life then that means it’s time to cut back.
FOMO purchases/collectibles/tchotchkes
If you can’t cash flow it, then wait. I don’t care if it’s a Rae Dunn mug or the collector’s edition of a new videogame. Chances are good that you can find it on eBay or Mercari eventually…or you can find a knockoff on AliExpress.
Get rich quick schemes
Here’s where I come for the crypto enthusiasts. The first rule of investing has always been to only invest what you can afford to lose. However, a lot of people have lost sight of that in the recent crypto craze. If you’re keen on a prospect, go for it, but don’t do it with money that you have to pay back. Not every coin goes to the moon, most go straight into the grave.
Although financing might seem like the easiest option when you want to make a purchase, depending on what you want to buy, it could end up being a big headache to pay off. How do you feel about financing things? Have you financed something you regret? Let me know in the comments!
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