Tuesday, October 15, 2013

Credit cards? Financing? A couple of things you should know before packing for the USA

One thing that really drives me crazy and I still haven't got used to, is how Americans shop.  
In the USA, you can get virtually any deal with the "promise" you will pay sometime somehow.
When we went to look for a used car, since we were well aware of our financial situation, the car dealer wanted us to buy a new car. "Sure" I replied "if you are willing to buy one for me, why not?". Without our consent, the guy ran a credit history check, but guess what? After living in the country for less than 2 months it is difficult to have any credit history, so it turned out we weren't eligible for some sort of financing that we never considered in the first place. I hated the experience of being X rayed by a salesman- when I tell you I am looking for a car in that budget, I mean it, I know how much I can spend and am willing to spend! 
Eventually, we stuck to our original plan and bought a second hand car for the price we wanted, or better, for the price we felt comfortable we could afford. And we paid cash. I could sleep better, because nobody could come and claim it back. An unpaid bill or a deleted payment for any reason can cost you dearly, from losing more than what you initially intended to invest on. You have to be extra careful especially when you are still at school and living on your savings, financial planning plays a crucial role in your everyday life for the next two or more years you will be studying.
What I am about to say is obvious for people who are sensible and have that rare quality called common sense. I' ll get to the point: you buy what you can afford, it is as simple as that. This is the way I was raised, and right or wrong doesn't matter, at the end of the day you do your own maths.
Obviously, there are expenses that need financing (like buying a house), but here I am talking about things that are not really necessary.  I needed a cell phone, and I made sure I got the cheapest plan possible, which I found for $14.99 a month! I was gobsmacked just to see how much people in America are willing to pay for their cell phone plans, and it didn't look like they could afford it.
But the system allows you to spend more than you actually earn and that makes me very uncomfortable. If you can't wait to get the latest technology gadget you want so badly, you can put it on your credit card. With the American credit card system, you are fully in charge of your finances, which is of course a big plus if you pay your debts on time, meaning you do your diligent work at the end of every month, but it can also be a huge minus for those who don't have control over their expenses.
Unlike Europe, where the outstanding balance of your credit card must be paid within the following month, in the USA the card holder decides how much to pay per month (although there is a minimum), so the outstanding expenses roll over to the next month. However, this flexibility comes at a price, the gadget that initially cost $500 let's say, can end up cost you well over $ 600, depending how long you procrastinate the payment.
Credit cards and financing have become increasingly popular in the last twenty years in Europe to "help" a buyer who can't afford to pay the whole sum in one go, breaking it down in monthly installments. However, interest rates are skyrocketing up to 30% (excluding a fee to open the contract). If I appreciate the practicality of it, and take advantage of it, I refuse to give in to its charm. I don't want to work for my credit card, the credit card has to work for me!

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