• Olga

Dear Olga: Tight on cash

Dear Olga,


Should you use financing for big purchases? What are the advantages and disadvantages of financing and how can you decide what's best for your personal situation?

Thank you,

Tight on Cash

Dear Tight on Cash,


Before we discuss how to decide if it's the best decision for you, let's talk about what financing means.


Financing a purchase means that you will be getting a loan to cover the large purchase. For example, you want to buy your child a new computer and instead of paying the full amount the store will extend you credit for that amount and you can pay it off over a period of time.


Whether you call it financing, credit line or loan, it's new debt that you'll be adding to your monthly responsibilities.


If you're already tight on cash, consider if you can afford to make this purchase in the first place. If you can't manage the minimum payments, you shouldn't take on any new debt. Consider starting a small savings fund that will help you save the money first and you can pay off the purchase in full the day you buy it.


If you'll be able to manage the minimum payments, consider if your credit score is in good enough shape to handle a query that will be kept on your record. If you're not sure if the store will check your credit score, don't assume they won't, ask before they do it and your score feels the impact.


Most importantly, be sure to consider why you are thinking about making this purchase in such a rush. Make sure you aren't experiencing Lifestyle Creep, when items you once considered luxury become necessities.


I recommend leaving financing for things like car purchases, a car for most people is the only way to get to work otherwise they may be out of work. These are the situations financing is a good option to consider.


If you have any questions that I didn't cover, I'm happy to hop on a quick call with you. Here's a link to my calendar! 🗓 No pressure to become a client, just a short call to give you a some practical and actionable tips to help you find your path to financial independence.

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