SAVING Vs BORROWING?
Saving vs Borrowing? One of the easiest ways to reduce your debt is to not get into consumer debt in the first place. The advertising draws the inexperienced in, and a lack of disposable income resulting from not paying off these debts make it self-perpetuating.
Let’s look at the difference in saving for a car or borrowing to buy a car.
By saving $283 per month ($3,400pa) over five years at 5% interest you would have $17,000 which when invested with interest, gives you almost $20,000 to spend.
Banks promote the ‘have it now’ mentality which means by paying $283 per month ($3,400pm) over 5 years at 14% you would still have invested $17,000 for a $10,000 item. Both of these examples demonstrate the power of compound interest working for you or against you.
An added problem is that by the time you pay off the first car over 5 years, it needs replacing and you have to borrow again, and again. By saving for a good car, you have 5 years to save for a replacement while driving a new car — and you will never have to borrow. Borrowing money for a non-appreciating asset is never a good idea.
Did you know?
By borrowing the money and paying it off over five years you paid $17,000 for a $10,000 car.
Savings + interest over 5 years
Amount borrowed = $10,000.00
Repayments+interest over 5 years
It’s easy to see the difference. All you need is some patience.