Ram Samudrala wrote:
- quote -

Sure it makes sense by the numbers. But is it really worth the hassle?
Plus, each time you apply for credit your FICO score does get dinged.

Anoop

Ram Samudrala wrote:
- quote -

Ram-
Sure, for someone VERY disciplined and for large purchases it could be
worth it. If it's a $500 TV set I'd question whether it's worth the
bother. Ditto if it's 1.9% (where you make the difference - say, 3.6% -
1.9$ = 1.8%, minus taxes). Or where there's an up-front transaction fee
of a few percent.

A few of the potential traps/unintended consequences:

1. carrying that $10k debt may affect your ability to borrow, or the
rates you get, it affects your FICO score. Not good for a potential home
buyer.

2. the "fixed interest" pitch is, to me, sinful and deserving of FTC
attention. It's not really fixed on a lot of them, if you read the fine
print...it will have all sorts of triggers. The one I think is a real
problem is "changes in credit rating". W/some they can reassess your
credit and decide that you are riskier, and break your fixed rate.

3. if you miss a payment then typically you break the fixed rate, and
the interest may be retroactive to the first day that you borrowed. This
is easier to manage now with electronic payments but if you don't pay
that way, or you happen to cross a check deposit with a payment, it
could blow up the whole thing.

On the flip side a few people can really make bank on this if the
numbers are big enough. An example is a business owner who uses accrual
basis accounting. You buy say $25,000 of furniture, computers, etc for
the business at 0%, and throw the $25k into an interest-bearing account.
You take a Section 179 election on all that stuff, meaning you write off
$25k against income that year, which might be a 50% tax benefit
(factoring in state, federal, & payroll taxes). You pay the thing off in
a year or two, pocketing both the interest and the tax benefit from the
deduction. So it might be $14k in your pocket without shelling out a
dime for two years.

That's an extreme of course. If it's a $30 cordless phone from
BestBuy..not so much!

-Tad

I, like John Weeks, am against carrying unsecured debt for a variety
of reasons. But yet all these 0% offers, and the 1.9% fixed for life
offers, have a mathematical appeal in the sense that you have more
than you started with for what seems like no work. So I came up with a
rationalisation/solution which might work: whenever you take advantage
of such an offer, you put the equivalent amount in a separate fixed
high interest bearing account. I then consider my unsecured debt to be
equal to what I owe subtracted from what is in this separate account.

So you could buy furniture for no interest and no payments until 2008,
and rather than promising your future income away, you put that money
in this account and let it grow (in other words, you still don't get
the furniture until you have the disposable income to do so). Even
though the interest you'll earn isn't a lot (about 1200 over three
years, at 4% and assuming a 10,000 balance), it's mathematically
acceptable and also may give peace of mind in terms of carrying a
debt.

--Ram