Strategic spending, or financing, is something about which many people have strong opinions. I’ll just cover the basics in the context of credit card financing arrangements.
Some stores and merchants give you the ability to apply for a line of credit and obtain 0% interest financing on a large purchase with them. Some of these includes jewelry stores, furniture stores, mattress stores, and other dealers of low-volume, high-priced goods. Even if you pay in cash, these financing arrangements are sometimes available. These lines of credit, though, are not the same as a credit card. You can’t use them at other stores, and you don’t get a physical card to carry around and use to buy coffee or socks.
Now, there are lines of credit available through banks and credit unions, but these are meant to cover your expenses when you have completely depleted your checking account and need to cover purchases without being penalized for being overdrawn. To be clear, overdraft lines of credit mean you are overdrawn on your checking account. You have negative dollars in the bank. These lines of credit are not the same as the credit available through merchant promotions or credit cards. They don’t provide you with rewards or perks, and are only meant to be used as an emergency tool for when life requires you to spend money that you do not have (think of an emergency trip to the dentist for your child that will overdraw your account, but you get paid in a couple days). While this accomplishes the same thing as a credit card, it’s not designed to be used in the same way, and isn’t available to use until you run out of cash.
When you think about financing, you think about words like loans, debt, interest, and other words that send shivers down the spines of people used to seeing the ads on TV that I did when I was younger. Financing can be used for good though. Think of it like this: If you need a couch because you just got a new apartment, but money is a little tight, you can either fork over the entire sum in cash, up front, and have nothing left in the bank, or you can finance the purchase. Same sticker price on the couch, same price you’ve paid when all is said and done, but you don’t have to empty your account to get the couch in your apartment. You get to keep your liquidity (the ability to pay your debts or unexpected expenses as they come due with the cash reserves you have left) and get your couch.
The best financing arrangements are for fairly priced goods at no interest, and taken on responsibly by those that can afford to pay in full, but would prefer to maintain their liquidity. Some cards give you the ability to finance purchases, and still function as a regular credit card. Two examples of this that come to mind are my Best Buy Visa card (they also have a store card that can only be used at Best Buy) and my Amazon Prime Visa Rewards card (they also have an Amazon store card that can only be used on Amazon, and a non-prime version of the Visa card). I think I’m supposed to tell you that I’m not sponsored by either Best Buy or Amazon, so I’ll go ahead and just say that I’m not, because I’m not. I’m speaking from personal experience about some of the cards I currently have or have had in the past.
With these cards, and other cards like them, you can make regular purchases for things like books, gas, and food, wherever credit cards are accepted. You can also walk into Best Buy and finance a large purchase for something like a refrigerator without any interest for a predetermined amount of time. Depending on the dollar amount, the length of time available for zero-interest financing varies. The more you spend, the longer you can take to pay it off. Sometimes you need a refrigerator, but you don’t have the cash to drop on it all at once, or you don’t feel comfortable sacrificing so much liquidity in one purchase. A credit card can help you avoid that in ways that other payment options can’t.
Likewise, if you do a lot of shopping on Amazon, you can finance a purchase over a period of months at 0% interest, and then use that same card to go out and pay for your car’s oil change and pick up more pens on your way to work. You maintain your liquidity, you avoid the extra cost of paying interest on a specific balance you’re carrying over a period of time, and you can use it at other merchants and for other purposes.
While these financing arrangements aren’t as ubiquitous across credit cards the way rewards programs and perks are, they are available on some cards and at some stores. To take maximum advantage of all the benefits that credits cards can offer you over the use of cash and other payment methods, it’s important to develop a plan for avoiding interest.
Lance Out Loud 