Cash Vs. Credit

(Big Money Smackdown)

Let’s get right down to it. So, you want to buy a 55-inch high-definition TV for your new apartment, and it costs $1,854.

In this corner, we have paying for the TV with cash.

In order to pay with cash, you would have to work extra hours and cut back on other expenses. You might decide to sell some things and to pick up a few odd jobs. Let’s say you can save an average of $200 a month. At this rate, you would be able to buy your TV in about 9 months.

And, in the opposing corner, we have charging the TV on your credit card.

Say your credit card only requires a $25 minimum payment each month, but it charges 20% interest. If you make only the minimum payment, 20% of the leftover amount will be added to the balance. And, this will happen each month until you’ve paid everything off.

At this rate, it will take you 109 months, or 9 years, to pay for that TV in full. Plus, you’ll be spending an additional $1,669 in interest, making the total cost of the TV $3,523.*

*Assumes $1,854 balance on credit card with 20% APR and 3% minimum payment, which is paid off in 109 monthly payments of $25.

AND THE WINNER IS...

There is no right or wrong answer, but you get to decide how much that TV really is worth to you: 9 months and no interest, or 9 years and almost double the cost of the TV. Of course, you also could charge the TV on credit and pay more than the minimum balance each month. No matter what you decide between cash or credit, keep the big picture in mind.

As always, we’ve got your back. — The On Your Own Team End of article insignia

Young female boxer contemplates how long it will take to pay off her credit card.



[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by On Your Own, the National Endowment for Financial Education or any of its affiliate programs.]