Deals – Good, Better and Best

An important concept in financial management is the time value of money. Simply put, a dollar today is worth more than a dollar tomorrow. Why? You can put today’s dollar to work for you earning income, such as interest. Consequently, you should try to collect any money owed to you as soon as you can. For example, if your are entitled to a tax refund, file your tax return at the earliest possible date. Conversely, to maximize the time your dollars are working for you, hold onto them as long as you able. Following are three deals that allow you to do this.

The Good Deal

Let’s say you need to buy a big ticket item (a refrigerator, a new bedroom set, etc.) Look for retailers that offer zero-interest with a long-term payback period, such as Sears, Best-Buy, and Rooms To Go. For example, at the time of this writing Rooms To Go offers no down-payment and no interest on purchases until Jan. 2020, provided you make equal monthly payments during this period. How good is this deal? Let’s say you buy furniture for $4,000 in Apr. 2016. According to the offer, you’ll have 44 months to pay-off the $4,000 in equal payments of approximately $91 ($4,000/44) per month. Rather than pay $4,000 today, a portion of these funds can be earning income for you over the next 3+ years.

The Better Deal

Currently, credit card companies are issuing blank checks to cardholders that can be used to consolidate debt at a lower rate or to make large ticket purchases. Most credit card companies offer 2 options: (1) borrow for a long period of time at a low variable interest rate, or (2) pay a one-time fee (3%-5% of the amount borrowed) with no interest if the full amount is repaid within a prescribed period of time (generally 6-18 months). Generally, the second option is the better of the two.

Recently, I purchased an appliance for approximately $2,000. The retailer offered me a 5% discount or a zero-interest, 12-month pay period. A few days earlier, a credit card company had sent me a blank check with zero-interest, a one-time fee of 3% of the amount borrowed, and a payback period of 12 months. I combined the 2 offers. By paying off the appliance immediately I saved $100 (.05 x $2,000). I accepted the credit card terms requiring a fee of $60 (.03 x $21000). Net net, I came away with $40 and a monthly payout of approximately $167 ($2,000/12).

The Best Deal

Southwest Airlines provided me with the best deal. My husband and I needed to fly one-way from Maryland to West Palm. Southwest offers three categories of online ticket pricing: Business Select, Any-time, and Wanna Get Away. On the day we needed to fly, Wanna Get Away tickets were available for $71 per person.

When I went to pay the $142 (2 x $71) for the 2 tickets, I was offered a Southwest Credit Card that would immediately give me a credit of $200 that I could use toward the flight. So essentially, Southwest paid for the flight and gave me an additional $58 ($200-142).

The Take-Away

In financial transactions, always keep in mind the time value of money. Look for deals that enable you to hold onto your money as long as possible.

The 3 deals mentioned above at not the only ones in town. If you know of any, please let me know at [email protected] and I’ll pass on the information to readers.