Staying out of debt is difficult. Terribly difficult. It isn’t made any easier if you rationalize yourself into debt, either. Many of us spend a good deal of our time and energy trying to get out of debt, and stay out of debt. We do that through so many devices, and each have our own system that helps us along the way. Budgeting is obviously a big tool that many of us use to make sure that we have enough money to pay the bills, and ourselves at the end of the month. We figure out how many months it will take to pay off this debt, or that debt, and then budget out that amount over that many months.
Many years ago, I spent a few years working as a salesperson at a retail store where bigger ticket items were popular. Computers, televisions, and cell phones were big sellers, and good for commissions. As part of our training for our jobs, we were trained on the many ways to sell a customer on the item they were looking at, and even how to convince the customer that they needed the upgraded item. One of those sales tactics was to help them rationalize the purchase. And, chief among the ways to do that was to take the price of the item, break it up over a set amount of months (24, 36, 48, 60) and tell them how much they’d be spending “a month” for the item. Suddenly, that $2000 computer (it was that long ago) becomes a $25 a month purchase. Psychologically, people are more likely to purchase something if it’s under $100. Even if that “under $100” is in the form of a monthly payment for several years.
Salespeople are the only ones we have to watch out for when it comes to this tactic in particular. Pay special attention the next time you’re looking at purchasing something. See how many times over the next month, you attempt to rationalize a purchase based on what it will cost per month on credit over what the total price will be. I think you’ll be surprised just how often you use that same sales tactic on yourself.
Don’t rationalize your way into debt. Fight back, and stick to your guns. That purchase has a total price. And if you’re buying it on credit, that price will be far larger than if you had purchased it with cash. More importantly, don’t saddle yourself with more debt just because the “monthly” price is more palatable.
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.
The bigger whammy is that most of that stuff is worth less than what you owe on it the day after you buy it. That $2,000 computer would likely only fetch you $1,000 or so as it’s a used item, yet you’re on the hook for that full amount.
Plus interest.
I agree with you completely and I don’t think I could ever be a salesperson for that reason. I do think I could be good at it though, just don’t want to put people in bad financial positions.
Rationalizing purchases is definitely a whammy when it comes to increasing debt. When deciding between a car with a sunroof or without, I rationalized that it was only a few more dollars per month for the pleasure of having a sunroof, but I’m paying interest on top of it!
Upselling is an important part of being good at sales especially if your pay is commission based. And you are right it is easy for people to rationalize a payment when you break it down into small amounts. Dell computers have used the for years in the ads. Saying that this computer will only cost you 50 cents a day or something like that. People think wow…that’s sounds great, and it works on so many people.
Great post to remember when out shopping, and good point Money Beagle! Cars for example: The 0% interest for 84 months promotion sounds great as far as monthly payment, but what is that car going to be worth when there are still years left on the loan? So then we buy gap insurance on top of the regular insurance, taxes, gas… it sure adds up. One of the worst scenarios I see are consumers with two (or more) new car loans with the automobile worth less than owed and the monthly payments often meeting or exceeding a house payment!
Thomas Nitzsche
ClearPoint Credit Counseling Solutions
Funny thing is for some it’s dead obvious this is happening with a sales person and for others they are off in la la land and agree. They will go into debt simply because they can pay the tv off over 4 years at 22% interest and $15.00 a month. I think sales people can see them coming. I for one play along and help them gain experience working on me for the next person who believes in their marketing story to sell and make commission. Could I do it, You bet I could. It’s so easy to sell to someone who wants another person to justify the spend for them. Would I do it.. no, I enjoy helping people out of debt not suckering them into it.
Make your own judgement calls, don’t let anyone influence you and always always sleep on it and research any products especially big ticket items.
Cheers,
Mr.CBB
Agreed! And often times when I pay with cash, I get an even BETTER price, because I have the ability to negotiate. Good post!
This is totally true; I had problems with a car because the salesperson broke the cost into monthly pays. That was a headache, and it’s not only that, when we see that the monthly cost is so low, we keep getting and buying stuff that we don’t even need, at the end you get really screwed. The thought that one or two debts won’t do much to our pocket, is the principal problem, but when we start adding all the small debts you get, a huge one.
I’ve definitely been guilty of thinking like this, especially when I was younger. These days, the only get I’ll allow myself to rationalize is my mortgage – because, quite frankly, everyone needs a place to live. I still feel guilty about it, though.
Instead of looking at how much more house we can get for another $100 a month, we should be looking at how much faster we could actually own our home if we bought one at an lower price and paid $100 more per month on the mortgage. But neither the realtor nor the bank are going to suggest this. The realtor wants a bigger commission and the bank wants more interest. This sales tactic of helping people rationalize the purchase by breaking it down into small, affordable monthly payments isn’t just for retail.