Author Topic: Is a 0% loan a debt emergency?  (Read 4801 times)

Heckler

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Is a 0% loan a debt emergency?
« on: July 30, 2015, 11:55:50 AM »
Other than mortgage (paid off in Jan 2016), our only debt is a 0% Home Depot loan I could easily pay off, but I plan to minimize payments and stretch it out over the 1 year timeframe of 0% interest.

What say the Mustaches?  Emergency, or good source of cash in the bank instead? 

FWIW, were talking about a $400 loan I can either pay off today, or $100/month for the same cost.  However, there may be a water heater and dishwasher in thenear future if they are also offered at 0%.

Trudie

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Re: Is a 0% loan a debt emergency?
« Reply #1 on: July 30, 2015, 12:04:27 PM »
Logically, I'd spread it out... but I wouldn't sweat it.  This is small potatoes.  I've paid off similar purchases before just because I get tired of writing a check each month and putting a stamp on it.

Heckler

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Re: Is a 0% loan a debt emergency?
« Reply #2 on: July 30, 2015, 12:08:23 PM »
I havent written a cheque since the internet was created.  Nor am I sweating it, Im just curious how you all see this kind of debt.

I see Home Depot USA offers a 10% discount, or 0% financing in thier card, but my Canadian one does not.  Makes me wonder if I paid 10% too much to start with (although thier price was competitive).

KCM5

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Re: Is a 0% loan a debt emergency?
« Reply #3 on: July 30, 2015, 12:14:58 PM »
Not an emergency, but I'd pay it off anyway. I just personally don't like things hanging around like that. But if you're sure you're going to pay if before it accrues interest, go for it. It seems like a paltry amount and have you put the $400 into savings that earns interest/investments? Otherwise you're not gaining anything from having the loan, so why not pay it off?

dantownehall

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Re: Is a 0% loan a debt emergency?
« Reply #4 on: July 30, 2015, 12:16:10 PM »
A 0% loan is money in your pocket - I would stretch it out as long as I can.

themagicman

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Re: Is a 0% loan a debt emergency?
« Reply #5 on: July 30, 2015, 12:43:53 PM »
Its not an emergency but I would pay it off. To me the the ~$4 you make in a year on the interest isn't worth the hassle to remember to pay it and doing it. I would just pay it off and be done with it.

Terrestrial

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Re: Is a 0% loan a debt emergency?
« Reply #6 on: July 30, 2015, 12:49:51 PM »
The gain for the alternate use of money on the scale of that debt ($400) is not worth enough to make me want to worry about paying it in little spurts.  Plus, I have had these lowes type 0% credit lines before, sometimes the terms say if you miss a payment (on accident) you can get hit with a massive interest % and back interest.  It was worth it then when buying thousands of dollars of renovation supplies at a time (plus sometimes you get a discount for using their card), but not worth it in my book for a few bucks of interest gained on less than a grand.  Even if there is no penalty clause i just wouldn't want to deal with it for such a small ammt of money. 

For some kind of a sizable ammt of money, i would be willing to consider strategic 0% debt if the 'juice was worth the squeeze', i.e. i gained enough in order to make the hassle worth it. 
« Last Edit: July 30, 2015, 01:04:28 PM by Terrestrial »

Calvawt

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Re: Is a 0% loan a debt emergency?
« Reply #7 on: July 30, 2015, 12:59:16 PM »
For that amount, I would pay it off and move on.  Too small to really gain anything vs the risk of penalty interest.


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frugaliknowit

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Re: Is a 0% loan a debt emergency?
« Reply #8 on: July 30, 2015, 01:23:48 PM »
I have a similar situation.  I am sitting on a $950 0%/no fee paid advance (originally $4000 for dental surgery) from Capital one from maybe five years ago.  One of the reasons I don't pay it off is I know they will be bugging me to take out a cash advance (again).  It keeps the account (which I don't need anyway) active, and since it's my oldest credit card, keeping the card improves the average age of my accounts.  If I ever screwed up and they raised the rate, I would just pay it off.

Overall, such situations are really "a toss".

FrugalSpendthrift

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Re: Is a 0% loan a debt emergency?
« Reply #9 on: July 30, 2015, 01:49:16 PM »
Emergency, or good source of cash in the bank instead?
How much interest is this money going to earn sitting in your bank account while this loan is stretched out?  like $0.25/month?  It isn't worth the complication.  I would pay it off, just so that I wouldn't have to use any mental energy in the future thinking about it.

FIRE47

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Re: Is a 0% loan a debt emergency?
« Reply #10 on: July 30, 2015, 01:55:04 PM »
It's $400 at 0% interest - comon man, was this really worth a post? In what world could this possibly be an emergency.

DaKini

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Re: Is a 0% loan a debt emergency?
« Reply #11 on: July 30, 2015, 02:23:56 PM »
Quote
if they are also offered at 0%.
I suspect the interest is hidden in a higher base price.

Heckler

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Re: Is a 0% loan a debt emergency?
« Reply #12 on: July 30, 2015, 02:41:01 PM »
For the record it started as a $2000 loan. Im more debating if it makes sense to save up the next  $3000 for a new water heater and dishwasher or if 0% is guilt free debt.

hotdiggitydog

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Re: Is a 0% loan a debt emergency?
« Reply #13 on: July 30, 2015, 02:55:10 PM »
For the record it started as a $2000 loan. Im more debating if it makes sense to save up the next  $3000 for a new water heater and dishwasher or if 0% is guilt free debt.

I agree with the other posters. What the $400 will gain for you is vastly underwhelming vs what harm it could do to you.

Don't these 0% loans usually have a caveat of some sort? For example, if you fail to repay the full amount within 12 months, you get charged interest on the full amount of the loan ($2000)? 25% of that would be $500.

Nobody's saying you won't pay the remaining amount on purpose, but brain farts are known to happen to even the best of us.


deborah

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Re: Is a 0% loan a debt emergency?
« Reply #14 on: July 30, 2015, 04:10:47 PM »
For the record it started as a $2000 loan. Im more debating if it makes sense to save up the next  $3000 for a new water heater and dishwasher or if 0% is guilt free debt.
I was with you until I saw the bolded bit. They are gradually suckering you into becoming a consumer sucker.

Note: I have a 0% loan - the only debt I have had for 16 years. However, all the money for it sits in the special account I set up to pay for this stuff and is earning 2% PA. It automatically gets paid from the account whenever a payment is due, so I need to do nothing. So I actually HAVE the money and HAD it before the loan was taken out. The only reason I have the loan is that it makes more sense.

The_path_less_taken

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Re: Is a 0% loan a debt emergency?
« Reply #15 on: July 31, 2015, 06:14:38 AM »
A 0% loan is money in your pocket - I would stretch it out as long as I can.


Yep. Free money: take it.

Heckler

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Re: Is a 0% loan a debt emergency?
« Reply #16 on: July 31, 2015, 08:03:26 AM »
Consensus is it's free money as long as you have it and make damn sure you pay it monthly.  I  agree, and like the idea of automating payments.   

Deborah, by "save up", I meant allocate new funds to be able to pay the loan off any time, because the cash I have already has a job - our emergency fund.  A water heater isn't an emergency till the water is on the floor in a huge lake, although it's starting to dribble a bit.

FrugalSpendthrift

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Re: Is a 0% loan a debt emergency?
« Reply #17 on: July 31, 2015, 09:07:45 AM »
Im more debating if it makes sense to save up the next  $3000 for a new water heater and dishwasher or if 0% is guilt free debt.
That seems like a lot of money for a water heater and a dishwasher.  I just replaced both my water heater and dishwasher for less than $1k.  Don't let the free money entice you to spend more than you otherwise would.

seattlecyclone

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Re: Is a 0% loan a debt emergency?
« Reply #18 on: July 31, 2015, 09:32:52 AM »
On the one hand, the free float offered by a 0% loan can help you keep more money invested for longer. When I signed up for the Citi Double Cash card earlier this year, they gave me a $10k credit limit and 0% interest for the first year. I'm making minimum payments and investing the difference, with a plan to pay off the full amount at the end of the 0% interest period. The key to making this strategy work is to not buy a single thing that you wouldn't have bought with cash. If you don't trust yourself to do that, a 0% interest line of credit is playing with fire.