Debt Free

Here's a point for you to mull over for a while. If you are in debt, you make a choice with every dollar you spend weather to pay down your debt or to make the aforementioned purchase. That means that you're essentially buying everything on credit, as every dollar spent on purchases could have been used instead to retire the debt. That means that each dollar carries with it a cost associated with the debt that you failed to retire by choosing to make the purchase in lieu of eliminating the debt.

Lets say, for the sake of argument, that you currently have $10,000 in outstanding credit card debts at an average interest rate of 15%. You want to see all your favorite bowl games in their requisite HDTV splendor (and impress your friends with the spectacular picture quality of the large screen HDTV in your family room). That being the case, you trot your self over to your laptop to check the ratings on the latest 52” LCD and 50” plasma TVs. After a bit of research, you settle on a new Samsung LN-T5281F with dynamic LED back lighting (a marvel of technology, that) or a Pioneer PDP-5010FD Kuro plasma (the best plasma image I saw at the recent CEDIA show in Denver, although Pioneer cheated a bit by using custom produced demo material).

These are both truly fine,1080p displays that will wow even the most jaded video critic, so your drunken friends should be suitably impressed as you gather to watch the Fiesta bowl. So, what is the cost to impress your friends and enjoy a bit of HDTV bliss? The best is never cheap, and these TVs certainly aren't, but you're going to pay it off right away using your Christmas bonus, so what's the problem? The Samsung LN-T5281F is $4,499 over at Abt Electronics, one of the few web retailers to offer this high end model. The Pioneer PDP-5010FD is an even bigger stretch, at a whisker under $5K over at OneCall, again, one of the few places on line to carry it. (Yes, if you actually order one of these, I'll get a (very) small cut. It helps with the bandwidth costs.)

One note here about purchasing electronics on line – There are many unauthorized retailers out there where you can find products. However most manufacturers have only a select number of on line retailers that are actually authorized to carry their products. Failure to purchase through one of the authorized retailers will bring with it a host of problems, including loss of warranty. Not a great deal on such an expensive product. In addition, many of the products are either grey market goods (goods for other markets transshipped to the U.S.) or aren't really in stock. Upon ordering at the too-good-to-be-true price, you'll be steered toward another product.

Back to the question at hand regarding purchasing by the indebted. Spending your Christmas bonus on one of these fine TVs, while bringing untold amounts of enjoyment to you and yours, comes at a cost of failing to retire an equal amount of debt at an average interest rate of 15%. If, for example, you spent $4,499 on the Samsung, apart from helping the economy of South Korea, you are paying that 15% on an equal amount of debt that you still have, because you chose to buy a cool, new HDTV instead of losing the debt. So, in reality, the TV costs you $4,499, plus 15% a year until such time as that amount of credit card debt is paid off.

So, make sure you think about the debt you aren't paying off the next time you make a purchase instead of getting rid of some of your debt. Have a great weekend.