Cash is King

Same as cash offers are actually credit offers, and these can lead to unforeseen complications.


Third, you avoid damaging your credit score. Part of your credit score, also known as a FICO score (named after the company that developed the system), is calculated on your total debt used. For example, if you have a credit card with a $5000 limit and have $500 on it, you are using 10% of your credit. If you take out a loan to buy a new TV, the new loan might be for $2500, $2000 of which is used for the TV. Now you are using $2500 of your $7500 in total credit, or 33%. This makes your FICO score drop, which can end up raising your interest rate on a more important purchase, like a house.

Fourth, paying cash can save you money. For example, when we bought furniture for our first house, my wife and I were at a store offering six months same as cash. We offered to pay cash instead of financing and asked for a discount; the store knocked 4% off the price. Four percent off a $3000 bedroom set may only be $120, but that's enough for a really nice dinner with your significant other.

Ever notice that some gas stations offer a lower price for cash transactions than credit card purchases on gas? Asking for a discount can work in your favor even if you offer to pay cash instead of place a purchase on your credit card. The company pays a fee, anywhere from two to five percent, to the credit card company when you charge an item. Offer to split they credit card fee... you get half as a discount and the store gets half as additional profit.

Conclusion

Buying an expensive item on a same as cash basis seems like an easy way to get what you want, but it can lead to complications. You can get tricked into paying interest, as well as spending more than you originally planned. You risk damaging your credit score and miss out on the chance to get a discount by paying cash.

Yes, it is harder to get the items you want when you have to save. But, you save yourself a number of potential hassles. As I tell my recruits when I am their FTO, "Learn from my mistakes; there's no need to learn the same lesson twice."

Be safe and shop smart.



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