The right sort of debt
Brendan has decided to get a qualification through distance learning. He needs a computer at home so he can keep up with the course work in the evenings.
His course is about to start and he hasn’t got enough saved to buy the computer he needs. But Brendan is comfortable about borrowing for this because he knows he’s investing in his future.
Brendan has found a 12 month interest free deal for the $3,000 laptop he wants. He has to pay $35 in account charges but no repayment insurance premium.
He committed himself to paying off the debt within 12 months so won’t be paying any interest with the interest free deal. All up he would end up paying $35 extra – the set up account charge – for the deal.
If Brendan puts the laptop on his credit card at 19.5% interest, he wouldn’t pay any additional account charges but he would end up paying around $300 in interest over the year.
The cost of Brendan’s laptop:
| Cash | $3,000 |
| 12 month interest free deal | $3,035 |
| Credit card | $3,300 (11 monthly repayments of $300) |
Comparing all the costs, it’s obvious to Brendan that, assuming he pays off his laptop inside the interest free 12 months, hire purchase would be a good way to buy the computer.
