12 months, no interest -- I just got slammed with a massive charge of back interest :-(

[jefferson]

A year ago, we made the decision to renovate our kitchen..
We ordered cabinets, counter tops, and a new fridge from a local box retail store..
We paid about 30% of the cost out of pocket, but made the decision to finance the rest.

They were running a special where you could get 12 months, zero interest.
I was expecting a large bonus at work later in the year, that would cover the rest of the costs (over $10,000),
.. which would insure that we didn't get caught paying interest.

Of course, things happen.. and my company cancelled their bonus program last year (blaming the economy).
Without the bonus, we were able to pay down only about $2,000 of the $10,000 due.
I sorta hoped and prayed that something would happen that would enable us to come up with the rest, but we just didn't even get close.

A few weeks ago, I got a bill from the creditor letting me know that a $2500 interest charge had just been applied to my account.
$2500!!.. Just a painful blow.. And after calling the company and seeing if there is anything they could do to help me.. They pretty much laughed me off the phone.

In retrospect, if there was ever a time to play the balance transfer game, this should have been it.
I should have transferred the remaining $8000 to a credit card, where I would at least avoid the back interest..

Anyone else been through anything similar?
Is there anything that I am missing that could have (still can) help?

Thanks
Jefferson

[Jonathan K]

Jefferson,

They were running a special where you could get 12 months, zero interest.

I should start out by saying I worked in a box store for about 7 years and this is not uncommon. About 9 out of 10 customers who purchased items/services with 90 days same as cash (COP's) or No Interest offers didn't pay on time. About 4 out of 10 didn't pay on time any COP's or No Interest offers with terms of 12 months or more. That rose to nearly 7 out of 10 since 2008.

A few weeks ago, I got a bill from the creditor letting me know that a $2500 interest charge had just been applied to my account. $2500!!.. Just a painful blow.. And after calling the company and seeing if there is anything they could do to help me.. They pretty much laughed me off the phone.

Once again this isn’t uncommon. Many times the companies disclose in the contract (that most people don’t read) that interest accrues from the date of purchase and is tacked on the loan if the COP/No Interest Offer isn’t fulfilled. The companies out there know that we (as consumers) want what we want and we want it now. They pull you in with advertising and No Interest offers knowing that they will make a killing on the financing (interest) alone.

I should also mention that we purchased a new vehicle with "low interest" terms. When my hours were cut at work we had to pinch pennies to keep up the car payment. But we were able to do so and we paid off the loan early because we lived differently than many people for a couple of years.

As to the specifics here:

I was expecting a large bonus at work later in the year, that would cover the rest of the costs (over $10,000), .. which would insure that we didn't get caught paying interest.

Planning for large purchases usually works best when one budgets based on the guaranteed income.

Of course, things happen.. and my company cancelled their bonus program last year (blaming the economy).
Without the bonus, we were able to pay down only about $2,000 of the $10,000 due. I sorta hoped and prayed that something would happen that would enable us to come up with the rest, but we just didn't even get close.

Even though this wouldn’t be considered an emergency since this was a financial choice (risky) this is where having a good Emergency Fund set aside for unforeseen events is very helpful. Dave Ramsey recommends having a Fully Funded Emergency Fund with 3-6 months of expenses. Dave also recommends saving for purchases and buying cash. Check out his website here. This changed our lives about 3 years ago.

What to do: Unless you have a wealthy family member to pay this loan for you it is time to consider cutting down on expenses (cable bill, phone bill, & entertainment are good places to start), getting on a budget (or revising it if you already have one to include paying off the debt), and paying down the loan ASAP. Unfortunately, just like getting rich quick schemes don't work there isn't a quick and easy solution to getting rid of debt. But getting rich and getting out of debt have this in common: they require a good plan and the will to carry that plan out.

A couple of questions though. First, what is the interest rate of the loan? Second, what is the interest rate of your credit card?

A year ago, we made the decision to renovate our kitchen..
We ordered cabinets, counter tops, and a new fridge from a local box retail store..
We paid about 30% of the cost out of pocket, but made the decision to finance the rest.

Third, was this a necessity (ie: broken frig) or was it more of a luxury (wanted a new Side by Side or French Door)?

My father always told me the following: Spend less than you make.

Bottom line is next time perhaps consider saving for 100% of the purchase next time. Save a little each month for items you know you will need to replace in the future like a new frig, new stove, new car, new roof, new central AC unit, etc. From experience in retail I know that you can likely get a discount (we gave 5-15% discounts at the box store I worked) when paying cash for appliances, etc.

[4jacks]

Sorry to hear that. Nothing you can really do except learn from it and never let it happen again.
1) Avoid debt with a passion.
2) If you have debt, PLAY THE BALANCE TRANSFER GAME!

I've played that game many many times. It works but it's a hassle.