3 Ways to Finance Your Next Large Purchase—Without Going into Debt
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We all have larger than life dreams that seem completely impossible. That all-inclusive cruise. A shiny, new Mercedes. The diamond Tiffany & Co. necklace you’ve had your eye on for forever.
Whether you want a gorgeous set of Restoration Hardware furniture or you’re dying to get your hands on a designer purse, the unfortunate reality is that these things cost money… a lot of money.
Does that mean they’re unattainable? No. You don’t need to be a member of the elite rich to own luxurious items—you just need to know how to finance them responsibly. By no means do we encourage you to pull out the plastic and start swiping until your heart’s content; that’s a sure-fire way to find yourself drowning in debt.
But if you have a big purchase ahead of you—out of desire or necessity—there are three ways you can turn your farfetched goals into a tangible reality. Here’s how.
1. Shop for Interest Rates
The golden rule for staying out of debt? Finance as little as possible. Cash is always king but when that’s not an option, you’ll need to afford your purchase with a loan or line of credit. Do your best not to overspend outside your means; if you can’t pay off your statement balance in full, you should avoid making the purchase.
Always, always shop interest rates to find the lowest APR possible; high interest rates can make your purchase incredibly more expensive down the road. The key to obtaining a low APR is by having strong credit history. If your score is a little low, you should work on improving your credit before considering any large purchases.
Tip: As you shop for interest rates, potential lenders will want to pull your credit report which results in a “hard inquiry” that might negatively impact your score. Try to pull your own report instead with a “soft inquiry” that ensures your score stays nice and high.
2. Tap into Equity
Rather than borrowing money from a creditor, have you thought about tapping into your home equity? Both home equity loans (sometimes called second mortgages) and home equity line of credit (HELOC) allow you to borrow money against the equity you’ve built in your home with interest charged on the proceeds.
A home equity loan is a lump-sum payment, which is typically used to finance a big project such as installing a pool.
A HELOC can also be used as a resource to settle mounting debts and work your way back to financial freedom.
Tip: Not all loans are created equal, which is especially true when it comes to borrowing against equity. Terms, fees, and interest rates will vary dramatically based on lender and location.
For example, a New Hampshire home equity line of credit might have more competitive rates than a similar lender’s offering right across the border in Salem, MA.
Remember, do your research and always compare loan structures to make sure you find the fairest financing possible.
3. Save Instead of Borrow
This option doesn’t apply to circumstances in which you need funds to afford a big, immediate expense, such as unexpected medical costs.
But apart from emergency situations, you should always prioritizing saving money over borrowing money.
Playing the long, waiting game isn’t easy—especially when you need that Caribbean vacation like… yesterday. Be patient! Good things come to those who wait (and save!).
It’s true that interest rates on savings accounts are relatively low, but any interest coming in is much better than interest going out. Paying in cash helps to stay out of debt, plus you can often negotiate a better price with the “cash up front” bargaining tool (as I said, cash is king).
Tax season is just around the corner; can you wait for your tax return before making your purchase?
Tip: Budgeting and saving money can be quite a challenge, especially when you’re feeling that impatient, “must have it now” itch.
Make life easier with a savings app like Qapital that can automatically round up your debit card purchases to the nearest dollar and but the spare change into a savings account.
It simplifies saving, plus you’ll probably be amazed at how quickly a few cents here and there can add up!
You can have that 53” plasma flat screen—you just need to know how to responsibly purchase your big-ticket items by being wise with your money.
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