Tuesday, 04 August 2015 20:59

Rebates, Interest Only Mortgage, and Budget Motivation

Written by  Dave Ramsey
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Q. How do cash-back rebates work on electronics and other items?

A. I like this question. Most consumers don’t think about how the process works. They only care that it’s benefitting them from a financial standpoint.


Let’s say you buy an item for $1,000, and you get a cash rebate for $100. Basically, you just paid $900 for that item, right? So, what the companies are trying to do is incentivize certain retailers to buy a particular product or amount of that product, yet sort of protect the sticker price in the minds of the consumers. To me, it’s really a little ridiculous. Why not simply take off the money, and price it at $900?


That keeps retailers from jerking around with the margins. It purifies the process a little bit, but it adds to the hassle.



Q.Can you explain interest-only mortgages? Are they a good idea?


A. An interest-only mortgage is just what it sounds like. You’re paying only the interest on the loan, and none of what you actually owe. It’s a good way to stay in debt for the rest of your life, so they’re not a good idea.


Lots of people look at this product and say, “Wow, I’ll get a lower monthly payment, and then I can throw tons of cash at the principal.” Guess what, in most cases it doesn’t work out that way. Why not take out a good 15-year fixed rate mortgage and put a bunch of money toward the principal? Everyone thinks they have a great idea for tricking the system. But the only system that really works is to pay off debt as quickly as you can.


Interest-only mortgages are like adjustable rate mortgages and high fixed rate mortgages — they’re good things to stay away from completely!



Q. My wife and I are in our twenties. We have no debt and $50,000 in the bank. Our income is $90,000 a year, and we’re cautious to live on less than we make. Still, we can’t seem to get motivated to make a budget. How can we get inspired to do this?



A. Two of the biggest motivators we have are pain and pleasure. Financially, you guys don’t have any pain. You’re killing it! So, we’re going to have to figure out something associated with pleasure.


I think you need to look for something bigger than money to push you. You guys need to ask yourselves, “What are we saving for?” On a bigger scale, ask yourselves, “What can we do with this money?”


It sounds to me like you both realize money can’t be the goal. And that’s a good thing. You guys are obviously smart, gifted people. I’m sure you have ideas and goals, dreams and desires. Talk about them and write them down. By doing this, you’ll be taking the first steps toward making these things reality. When you have something specific that you want money to do, it gives you a reason to make it behave.









Last modified on Tuesday, 04 August 2015 21:00
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