Don't Defer Financial Experience

One way I gain financial experience in my own life is to simply try out financial products I am unfamiliar with.

In this case my wife and I needed a new couch. Ashley Furniture was offering zero percent interest for a year. I could have paid for the brown leather couch in cash but figured I would try out their deal and just make sure to pay it off within the first year. Turns out, that's exactly what you are supposed to do because while it is zero percent interest for one year, it is actually deferred interest. This means that interest has been accumulating that entire first year, I just don't have to pay it so long as I pay off the couch before one year. If, however, I go past the year, all that interest that accumulated over the first year is now applied to my outstanding debt, making the couch that much more expensive.

I do not remember what the exact interest rate would have been had I gone past a year on the payments, but I do remember it being similar to credit card rates, so high.

Since I did this little financial experiment and learned about deferred interest, I've seen this is how many businesses lure customers in. It seems like a good deal, and it is, but only if used appropriately. If you cannot meet the terms and pay off whatever you're buying before deferred interest kicks in, then it is probably better not to take on the debt. You will not actually save any money. Worse yet, your monthly bill will likely go up because of the added cost of the interest that is now being applied.

Sometimes the only way to learn is through experience. Simply reading something is not the same as living through an event. This can be applied to finance so don't defer financial experience.