A couple of friends of mine moved into a new house a few years ago, and found themselves with a lot more space and not much to fill it.
Their first instinct was to the upgrade the television. They had placed a 36 inch TV in the living room, but it seemed microscopic in their new digs, so they acted quickly.
Their eyes were clearly larger than their wallet, so they probably thought to themselves, “which store credit cards are easy to get”.
After probably a second of thought, they jumped in the car and went to the nearest Best Buy to upgrade the TV to something a little bit bigger.
The result was a 65 inch rear-projection TV, which happened to be the largest available at the time, in stock at Best Buy.
Of course they didn’t have the $2,000 available to pay for the thing, so they decided to charge it on a Best Buy store credit card.
One of them was able to get approved for the credit card, and the rest of the transaction went smoothly, allowing them to bring home the TV that very same night.
The TV looked great in their new living room, filling up a once vacant space with grandeur and style, and making the two of them very happy.
As time went on they made the minimum payment on the TV, usually over the phone which carried an additional payment. About two years went by when they discovered that they still owed around $2,000, the original purchase price of the TV.
Not only were they making the minimum payment and getting charged when they did, their interest rate was also through the roof, around 20% APR.
So while they thought they were making headway, they had actually done little more than pay the finance charges over about two years.
This is about the same time I caught wind of the situation, and subsequently offered my advice to them.
They had no idea that such a thing existed, and quickly applied for and received a new credit card, at which point they transferred the balance to the new card.
In less than 12 months, they were able to pay off the television and move on with their lives. They also learned a valuable rule about credit card interest and balance transfers.
If you’re in a similar situation, consider transferring the balance to a low interest rate credit card or better yet, a 0% APR credit card. Otherwise you’re simply throwing away money to unnecessary finance charges and falling victim to credit card debt.