MONEY MATTERS: CREDIT OR CASH?

There is a famous saying "a fool and his money are soon parted". My definition of a fool is someone who has no budget or plan for their money. When they receive money they spend it and wait on the next time more money comes be it a paycheck or whatever resource, because Yahweh is The Source, the money comes from. With that said, if you don't have a goal get one.

This past Sunday, I watched Washington Watch with Roland Martin on TV1. The topic for discussion was credit as well as saving and personal spending habits.

Credit for some its a scary taboo, for others they are so buried in it that it keeps them awake at night full of worry on how they will pay their bills and survive, and when we think about our credit scores and how it effects finance rates on purchases some automatically assume defeat.

Why is credit so important? Well in order to purchase a house or car mainly you need a credit history and a good credit score. This statement is incorrect and it is used often. Let me clear something up, in order to finance a house or a car lenders look at your credit score. If you purchase a house or a car with cash, your credit score is a non issue. Now I can see someone reading this right now saying how can you purchase a house or a car with cash? The simple answer, you save your money, if you choose to invest do it wisely, and build up enough cash to get what it is you NEED not want in a house and a car.

I read an article months or a year back about a couple who purchased their $100K home with cash. Of course I cannot find it right now but if you are a skeptic I encourage you to do your research. Michelle Singletary of the Washington Post, participated in the discussion with Roland Martin and she said that she only pays cash for her cars. She drives her cars until the door handles fall off and then she tapes the handles back on! She mentioned how she has the number for every tow driver in her area. She also spoke on how she never trades a car in she always fixes it up and gives it to a family member. Her reason for this is because she has a goal, she has 3 children that she wants to put through college with cash. Roland Martin mentioned he drives a Navigator that he paid cash for. Michelle's response was you can do that because you don't have 3 kids to put through college I would never buy that type of car because I recognize what my goal is. In no way was she knocking Roland she was simply stating based on her goal that is not a car she would justifiable purchase.

Now there are those that say don't pay cash for a car because it depreciates in value as soon as you drive off of the lot. True cars depreciate in value so why finance and end up paying more. If I buy a car and negotiate a price of $20K lets say it automatically depreciates. Cars depreciate between 15 to 20% each year. So let's say it depreciates 5% as soon as you drive off the lot. So what you paid $20K is now worth $19K. If you finance the $20K at 10% for 5 years you will pay about $25,500 in total for the car. Now let's see how much the car is worth each year with 20% depreciation:

Year 1: $16,000
Year 2: $12,800
Year 3: $10, 240
Year 4: $8,192
Year 5: $6,553.60

You have completed paying $25,500 for a car that has depreciated to $6,553.60 and that doesn't mean you will receive the $6,553.60 if you decide to trade it in. You also paid $5,550 in interest. Now imagine had you just paid cash for the car and saved the monthly note you would have been paying of $424.90, you would have a car worth $6,553.60 and have $25,494 saved in the bank to purchase a new car, CASH. So which way is better, paying cash or financing you be the judge.

Now back to the credit issue. Roland Martin mentioned that he had a low credit score because he buys everything cash and pays off everything on time. Yes, not using credit will cause your credit score to be low. However, if you have cash you don't need credit. Remember cash is king. And in this economy I encourage you to also invest in some precious natural resources, gold, silver etc. and have them at your disposal as well.

Now, financial "experts" will tell you, you must use credit, you must have credit cards and use them now and again to keep your credit score at a level where you can receive financing. Now just in case you ever choose to finance something I encourage you to be mindful of your credit score but I highly discourage falling into the credit trap. What is the credit trap? Charge it now and worry about it later. I believe everyone should have at least one credit card. It simply makes renting cars easier and some other luxuries in life, however only use it for emergeny purposes and pay off as much of the balance as possible.

Back to financing, before you finance a house, car etc. Obtain all three of your credit reports and credit scores from the credit bureaus. Be sure to dispute any discrepancies. A gentleman on Washington Watch mentioned if you are going to pay down debt to increase your credit score do it 30 to 45 days before you plan to make your purchase. Find out what your options are for getting the best interest rate possible even if you have a less than desirable credit score. Don't be so anxious to drive off the lot in the new car or move into your own home that you agree to pay interest rates of 15%, 30% etc.

I was able to purchase a car with 0.9% financing with a judgement on my credit report. Mainly because I did my research and I was prefinanced through Capitol One financing before I went to the car lot therefore I was informed and had a bargaining tool. The interest rate right now for home loans is 4.25%. Imagine qualifying to buy a home at a rate lower than that, it is possible. I have a cousin in North Carolina living in a home that she financed at 2.3%.

In closing, don't be a slave to credit. Don't use credit as a regular buying tool for clothes, shoes, grocery, restaurant meals etc. things that you could go without. Use credit wisely and sparingly. Save more than you spend as it relates to your discretionary income and live BELOW your means. Look for great bargains, sales etc. and please forget about the Joneses because they can't even keep up with themselves. If you are currently in a financial rut. Instead of quickly paying down your debt. I as well as other financial experts, no I am not an expert, suggest you pay the minimum balance on your credit cards while saving money at the same time. Again, cash is KING!

Yes, you can buy a car cash I am a witness to that. My first car when I drove it off the lot was paid for. Yes, you can put your child through college with cash. My father paid for my 4.5 years at the University of Illinois Urbana without me having to take out loans. Now had I listened to him and not gotten any credit cards while I was in school I would have graduated in a better financial state. Nevertheless, all is well now. Roland Martin even mentioned how he filed for bankruptcy due to medical bills etc., went through it and came out of it and now pays cash for everything. So no matter what your current circumstance it is not your final destination. Your life and your circumstances can turn around right now. Place a goal in your mind, map out a plan, execute the plan and stick to it by any means necessary.

Be blessed and be a blessing,
Epiphany Essentials