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Comment by ebg13 | Hacker News Reader

> I don't pay for anything other than my car/ house on monthly payments and nobody should

You should if there's no additional cost for doing so, because that's a free loan. The same quantity of money a few months down the road will be worth a little less than it is today, so you should give it to them then instead of now when you can do slightly more with it. If you can get either 1X and 2Y now or 1X now and 1Y later, you'd be foolish to do the latter.

And if you're thinking "but prices go down, not up", you're both wrong on average and also probably thinking about the exact category of goods (tech gear) that tends to offer interest-free financing.

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I mean it's "smart" and "efficient" but it's also fragile. The simplest way to manage your finances is to avoid debt wherever possible (especially consumer debt). Very hard to go into bankruptcy when you don't owe anyone anything!

The "smartest" way to manage your finances is to use credit cards that give you points and pay you back via a few hundred dollars worth of free flights a year. But there's a bunch of opportunity costs associated with pursuing that route, and a level of diligence that frankly most people do not have.

The best thing about debt is that it lets you move really really quickly - if you don't have $2k for that furniture set, you can just finance things and pay it off over 2 years. But that's the worst thing about debt as well - you now have a monthly obligation that's going to be a line item expense for the next 24 months. If you'd spent 12 months saving up for that furniture set and paid cash, the day you buy the goods is the day your financial obligations start and end.

I am not opposed to debt entirely, and think it can be a great strategic lever (I used a credit card to finance my initial move to America which has done wonders for my income and my career, far exceeding the interest costs that I paid). However I think for most consumer purposes it's less of a help and more of a hindrance. Take the new 84 month car loans. That's 7 years! That's a long time to assume that your life will have no material changes, or that nothing will go wrong.

Yeah, this is smart.

The most dangerous thing about debt is the tacit assumption you can keep making money as a functional adult. Full stop.

If you pay attention to the life stories of everybody who lives around you, that's actually a very dangerous assumption - it's about as dangerous and unreliable as a farmer assuming he'll never, ever, have crop failure. Some really informal guesstimation for me actually gives kinda comparable rates - 1/10 or 1/5 chances of it blowing up, every year. Just this very year, in fact, I've watched it blow up on half of my coworkers as they got laid off in the pandemic. They may have to default on their mortgages - loans that assumed the "working adult" party would just go on uninterrupted.

Yikes.

Debt can be useful, but man, people really need to only "sail out of sight of land" with a damn good reason. Don't just do it casually to pay for routine things like houses and cars.

Yeah that's 100% the truth. You also have to assume that multiple things happen at the same time - what happens if you buy a house two weeks before you get laid off at work and that's swiftly followed by your wife finding out that she's pregnant. Suddenly having 6 months worth of cash in the bank gives you a TON of breathing room.

The more we specialize, the more life becomes fragile, and the smaller the gains become. A Formula One car is incredibly fast, but the amount of attention and money each car requires is orders of magnitude higher than say a Ferrari road car, which is comparatively simple to manage.

Spending a large amount at once can also be fragile. They say many families don't have a few thousand set aside for emergencies. If you have a few thousand and spend it on a dining room all at once, you won't be able to handle an emergency even if your income would have easily handled the monthly payments.

Obviously, it's preferred to have both the thousands saved as well as the thousands needed to buy a new car or furniture, but one might not be able to delay forever.

> If you have a few thousand and spend it on a dining room all at once, you won't be able to handle an emergency even if your income would have easily handled the monthly payments.

Just as a single purchase can wreck your short term budget, a purchase spread over multiple months can wreck your long term budget. If that same family has an emergency that causes them to go into debt, they are now saddled with 2 debt burdens and can't pay rent/ make car payments/ eat.

If buying a choice dining room set will wreck your ability to handle an emergency, you are almost certainly better off not buying it either way. There are plenty of options for buying inexpensive furniture that isn't going to threaten your emergency funds.

> You should if there's no additional cost for doing so, because that's a free loan.

On the small time scales that interest free financing works, you're probably better off using a rewards based credit card and getting 2% back on purchases rather than handle the overhead of tracking eventual payoff date on various expensive on household items, or risk missing those and paying very high interest and penalties. A credit card payed off at the end of the month is after all a short term interest free loan.

After all, if you kept $1K in your investments by borrowing interest free for 1 year for a TV purchase, how much are you realistically going to make in the best of conditions on that $1K? 4%? So $40.

Not worth the overhead of managing it IMO, to say nothing of the credit damage that comes from excessive borrowing.

depends on how good you are with your finances.

You can easily get too much debt if you are not careful doing those kind of things. Most people just check that the debt payments fit in their budget, but they forget their budget might shrink.

US families are drown into debt, in fact most families live paycheck to paycheck, so i wouldn't give that advice of using debt event without interest. I would only give such advice to people I already know that can take care of themselves financially. (As in know how to actually manage money, not about being rich or poor)

And there is another benefit of paying in the act: its off your mind, one less thing to worry about. Might not be the most efficient but is the the one that makes you worry less.

> You should if there's no additional cost for doing so, because that's a free loan.

Any time you take out a loan, you are making a promise your future self must deliver on. The implicit assumption when you base your decision solely on interest rates is that your future self will always be capable of fulfilling that promise.

> The same quantity of money a few months down the road will be worth a little less than it is today,

If you are talking about furniture here, we're talking about saving a few pennies, maybe a couple bucks at most. Also, often places where you can get "zero percent interest", there are string attached. The perfect example is when you get a smartphone from your carrier and they don't charge you interest. You save a couple bucks over the length of the contract, but now you can't change carriers or upgrade your phone for the life of the deal.

TANSTAFL... or free interest either.

Only if 1) you are certain you have the means of repayment, and 2) the time to fill out the application is free.

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