How to Handle Baubles and Bait with Finance

Why are we distracted by baubles and bait? We can’t help it, we’re humans after all. Fear not my friends. You haven’t lost any IQ points if you’re an avid collector of the smurfs or you have to collect stickers in exchange for a prize. You are just doing what we’ve been designed to do since the beginning of time: hunt and gather. It’s the same when we’re looking for finance. Sometimes the baits and baubles appear to be SO good we can’t ignore them.

Keeping the whanau alive, is often addressed adequately by good economic conditions. Yet the hunter gatherer drive is still not satisfied, and we find ourselves pursuing baubles and bait we don’t need.

Because banks and lenders need to sell their finance products, they hire clever marketing types who KNOW we can be distracted by the baubles and bait they put our way. Just ask New World or BP the positive impact offering cheap baubles have on their businesses. Equally so, you might want to ask them what happens when they run out of the promoted baubles. It’s not pretty.

All logic would suggest that chasing after something that costs less than a fiver is probably not the best way to spend one’s time. But remember, this is another illustration of our hunter gatherer history.

What of the bait offered by the banks from time to time? Not all baubles are bad and not all baubles are good.  Your central question should be: ‘What’s in it for me?’ This shouldn’t be confused with the short-term ‘feel-good’ factor of winning the prize, instead you should consider the long-term consequences (good or bad) of taking up the bait or bauble.

Cash Contributions – Home Finance

At the present, cash contributions are only offered to those with at least 20% deposit/equity or more. Out of all the baubles on offer, this is one of the better ones; because you can then choose to reduce your home ownership costs. Or, depending on the structure you’ve chosen with your home lending, you could put it towards your home loan and reduce what you pay in interest in the long run on your home loan. BUT do be aware that your bank will want you to agree to be with them for a set period of time (in some cases, this can be up to three years) otherwise this free bee is fully or in part re-payable to them.

I know, doing something sensible like paying off debt or putting money towards the costs of finance is dead boring. That’s why some banks offer the bright lights and the razzle & dazzle. Like moths to a flame, we just can’t help ourselves, even if the voice of reason says otherwise.

The ‘free’ overseas trip/big screen telly/electronic gadget

The ‘free’ overseas trip just when you purchase a home. What could be more relaxing? Probably not the credit card bill when you get back. However, who am I to deny someone time away from the stress of buying a home? When the hunting gathering mode switches to magpie, we need to take stock.

I’d hazard a guess and that big screen telly and electronic doo-das from the bank cost them about the same as it would for someone buying them wholesale. How soon will that big screen telly be gathering dust?

While these baubles aren’t necessarily a bad thing, they can easily blind us from what else the bank is offering you. While you’re nicely distracted you could be agreeing to something you didn’t intend to. Check the fine print, go over it with your Solicitor.

Balance Transfer Credit Cards/Finance

If you are approved a credit card with the purpose of re-financing, this will work IF you are able to pay the debt off in full by the end of the prescribed term. If you know you can’t do this, you may benefit from a debt consolidation personal loan instead.

Watch out for credit cards with a great interest rate for the life time of the debt transferred. Make sure you’re paying much more than the minimum monthly required re-payment, otherwise you could end up paying more in interest than a standard personal loan. That’s because credit card interest is compounding, based on your daily balance. Plus you only have to meet the minimum required monthly re-payment. The trick with great interest rates for the life-time of the balance transfer: make payments to the card as often as you can. This reduces the impact of compounding interest.

If you  take the bait of a balance transfer credit card, you need to treat this like a loan rather than another credit facility. You’ll end up paying a higher interest rate on any purchases you make on the card. Balance Transfer credit cards aren’t necessarily a good or a bad bauble. It comes down to you, and knowing your own strengths and weaknesses. Will you be tempted to use any available credit? Or are you able to reach your goals no matter the distraction?

To help you decide if you’re doing the right thing with your credit card finance, have a look at Sorted’s calculators:

How do we deal with such “There’s a Giraffe!” moments with finance?

1. Give yourself a cooling off period, take the time to check the facts.

2. If you need help with ‘checking the facts’ get in touch with a Registered Financial Adviser. We can can help you dismantle the numbers and make sure it’s going to work for you.

3. Concerned you’re signing your life away? Make sure you have any baubles or bait offerings for home lending checked by your Solicitor first.

4. Always ask ‘What’s in it for me?’ with a long-term view rather than the short-term feel good factor.