The Coffee I Drank Last Year


Imagine this: you walk by a store window, and something cute catches your eye. You stop for a second and gaze longingly at it. You glance at your watch; you have 10 minutes to spare, so why not walk in? You touch it, hold it up, maybe try it on. And then, after you’ve fallen totally in love, you look at the price tag…Yikes! But at least it’s on sale?

And here’s the quandary. You didn’t really plan to spend money on a summer dress, and you definitely don’t have any money saved for it, so you bring out the credit card. You only live once, so why not just buy it? You figure the next month you have a little extra you’ll just pay it off. In the meantime, this purchase starts to accrue interest and you start making the minimum payment.

The next time, it’s a few hundred more, and then a little more, and wait — pretty soon there’s a few thousand dollars on your credit card that you can’t pay off that month. But is that really so bad? The government relies on enormous debt that they service each month. What’s the harm in owing a few thousand dollars compared to that?

Let’s break it down and see. First, you only bought that dress because it was on sale. You spent $82.50 including tax. Because you ended up charging other things and because the interest rate was so high, it ends up you didn’t really pay it off for 4 years. The interest rate you were paying was 19.90%. By the time the dress was paid off, you had actually paid $120.48 for the dress; not such a deal after all. In fact, if the sales clerk had said, “If you use that card to buy this dress you’ll pay a 46% convenience fee,” you’d have run for the door! But that’s exactly what you did, paid 46% more than you bargained for. By the time it was paid off, you might have forgotten about that dress altogether. Where is that dress anyhow?

“The interest rate you were paying was 19.90%. By the time the dress was paid off, you had actually paid $120.48 for the dress; not such a deal after all.”

If you raise the ante, the stakes get even higher. A $3,500 debt owed over 4 years at 19.90% requires $5,103.36 to pay off. If you are in debt, please know it happens to people at every income level from every walk of life. People worth millions like Larry King and Elton John have filed bankruptcy, all because they couldn’t control their spending.

And it doesn’t have to be big purchases. One harmless latte, 5 days a week, 50 weeks a year, is $875 worth of debt just the same way that 10 dresses worth$87.50 each are.

So, the next time you are out window shopping or stop at a café, make sure you have the money to pay for what you’re buying now. Even better, use your ATM Visa or Mastercard so that it comes directly out of your checking account and then you can easily track how you’ve spent the money. Debt is miserable for lots of reasons: it buries people, makes them feel stuck, keeps them from saving, and causes all sorts of strife in relationships.

Remember the next time you walk by a café and are tempted to spend money you didn’t plan on spending, stop and ask yourself this question, “Next year, at this same time, do I want to be paying for the coffee I drank last year?”

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