What are the traps of interest free deals? My most effective lesson ever! How much can they really cost you? Are they too good to be true? Is mental health affected by these deals?

 

This is the most effective lesson I teach in my classes, please take the time to understand this as it is truly lifechanging.  

Is this really a good deal?  How much will it really cost you?  What is the catch?  How much debt can you get into using these store cards.

There are a lot of things that you need to consider.  Many are in the fine print and many more not in the fine print but you are expected to know.  You will know after you read today's blog that is for sure.

Let's get straight to the point, surely its a great way to get something and not have to pay any interest or repayments, just have what you want?  WRONG!  so so so so so so so so WRONG!

Let's imagine we go in and purchase a lounge suite and a TV, it costs us $10,000, I have told you before I like to work in round figures, it is much easier on my brain that is for sure.  The calculations that follow will show you why that is important.  I don't expect you to spend $10,000 that is for sure.  In fact, please do not.

What I am about to show you is absolute fact!  Nothing made up, but many people do not know this is happening.

Firstly, if you pay off the full amount over two years there will be no interest, so for $10,000 that means paying $5000 per year or about $100 per week for 2 years.  That is quite a lot out of the family budget.  

This particular promotion says you don't need to pay anything for 2 years, so why on earth would you pay anything at all?  

Here's the crux of it, the reason why you should pay it off within the two years and not hesitate to pay it in full.

Firstly you need to understand this is a NOT A LOAN but a credit facility.  If it was a loan, it would have interest added up front and would be paid off on a certain date.  A credit facility is open ended, it never ends.

Lets put a time frame on this:

• 2023 you purchase the $10,000 worth of lounge suite and TV and you take it home, set it up and then you have a fabulous lounge and everyone is happy.  No repayments are made, things are great!
• 2024 you continue to enjoy your lounge suite and TV, all is well with the world.  No repayments are made, things are still wonderful!
• 2025 you continue to enjoy your lounge suite and TV, interest free period is off and repayments begin.  The finance company will now start to charge you interest FROM THE BEGINNING OF THE FINANCE DEAL!   They calculate it like this:

$10,000 x 29.95% for the first year so the total becomes $12,995, then they calculate 

$12,995 x 29.95% for the second year so the total becomes $16,887, then they calculate

$16,887 x 29.95% for the third year so the total becomes $21,994

So in 2025 the amount due (if it has not been paid in full prior) is $21,994

In 2025 if you decide to pay $100 per week, you have paid $5000 a year which is about the amount of interest that is being added each year so you will basically NEVER pay it off.  If you pay under $100 per week, your balance will continue to grow!  You will go backwards.  

I have been in this position and it took me a very long time to realise what was happening.  I have $70 left to pay at the end of the interest free term, I thought I could pay the interest on $70 but what turned out was the next monthly bill had over $5000 added to it. 

Also during the two year interest free period you will be bombarded with extra offers to add to your debt, this will compound the problem.

Please go over and over the above calculations until you understand.  These types of deals are crippling our economy.  

They also have an effect on the "money go round" as all of this interest is leaving our economy and going overseas.  The flow on effect of these finance deals is incredible.

The amount this affects mental health in New Zealand is out of control.  When you can't see how to get to the end and are just earning money that will tread water, your self-value takes a massive hit.  Often people will feel they are worth more to their family dead than alive, because they can't get ahead.  We all know the result of that train of thought, we need to stop this!

The best thing to do if you have one of these is to get rid of it, try to get a loan to get rid of it, a loan has an end date and will not compound no matter what the interest rate is.

Please, feel free to question, comment, follow, like and definitely share this blog, this is my most effective lesson to get people on the road to recovery from financial disaster.  This is massive!

It is not easy to break the cycle but until you do there is no way to get ahead.  Please do all you can to avoid any of these credit facilities, and that includes all store cards, all offerings of things for sale with a card attached. 

I hope this blog helps someone, but lets hope it helps everyone and contributes to some really meaningful discussions with your family.  Please share this far and wide and lets make a difference!