What’s the best money you’ve ever spent? Research shows that for most of us, money spent on experiences generates the most happiness. But is that worth borrowing money? In some cases, the answer may be yes. We asked people what was the best thing they had ever bought with credit, and got an array of answers (interestingly, no one remembered a car loan fondly). Following are three very different uses of credit, all of which make a really good story years later.
A Master’s Degree — in Paris
Sherry Smith bought a year to study in Paris, getting her master’s degree in 2006. She had a bachelor’s degree in fashion design, a line of work she had decided she didn’t enjoy. “I felt like I was on a hamster wheel,” she said, “moving but not getting anywhere.” She thought getting a master’s degree might help, though she hesitated to make a big investment that might or might not pay off. In addition, she lived in New York City, where getting a master’s degree could easily put her more than $100,000 in debt.
Then, on vacation in Europe, she realized she wanted to stay longer, and she felt the experience of living abroad was worth borrowing money for. If she could manage to get a master’s degree while overseas, that would be best of all. She settled on living in Paris and began researching her options, finding an English-language program in business communication. She still hadn’t figured out exactly how she would pay for it.
She emptied her 401(k), which had about $10,000 in it. She had talked to the program administrator who warned her of the early withdrawal penalties but also told her that her situation — going to school and not working for a calendar year — would mean she would not have a tax liability that year. “Unfortunately, there was no way I could get a traditional student loan, and personal loans had ridiculous interest rates,” she said. “The light bulb over my head lit up when I received a cash advance offer in the mail. I knew it was risky, since the interest rates can skyrocket when the promo period runs out, and one late bill can put you in the 25% APR category for every single card you’ve got, but it was that or nothing.” She took the risk, and spent a year living near the Louvre.
She knew she was playing a dangerous financial game, and she kept a spreadsheet so she would know when a promotional rate ended and money was due, sometimes taking another low- or no-interest offer to pay off a card that was about to raise the interest rate. She knew she couldn’t afford to pay late even one time. “I feel like they should give me an MBA just for figuring this out,” she says with a laugh.
The risks Sherry took had a happy ending. She returned to New York without a job, but soon found work as a freelance consultant. Now she is working in her field, business public relations. She repaid all her loans in about four years, at an average interest rate of less than 5%. Her 401(k) has long since been repaid, and she contributes the maximum to an IRA as well. She says she pursues high-risk investments hoping for big rewards. In the years since she returned from Paris, that strategy has worked well.
An Engagement Ring
Randy Brunson of Atlanta borrowed far less than Sherry did, and his “experience” is continuing. In 1975, he was a broke-but-in-love college student and he wanted to propose to his high school sweetheart, Teresa. They had talked about a future together, but Randy couldn’t afford a ring. And so he borrowed money.
“The engagement ring included a very small stone, more like a sliver, and cost less than $100,” he said “Actually, I think it was $60. At the time, my dad worked for a savings and loan,” he said. “I believe I borrowed the $60, and paid it back $10 a month, for six months.” (For context, the minimum wage then was $2.10 an hour, and Randy had no job.) Randy’s leveraged investment has turned out well, and it’s hard to think a bigger rock and more debt would have improved the outcome.
“She said yes, and we got married in June of ’76,” he wrote in an email. “I married up big time (most smart guys I know do).” And Teresa still treasures that engagement ring. They recently celebrated their 38th wedding anniversary, and they have two adult children and five grandchildren. “She’s a keeper,” he says. (As for Randy, he’s found work and has learned a bit more about money. He’s an Accredited Investment Fiduciary with The Centurion Group.)
A Moving Truck
Roy Adams, of St. George, Utah, moved there from Salt Lake City in 2010. He and his wife were moving themselves, and he estimated it would take about four round trips with a rental truck. Roy priced them, and it appeared they would be paying $300 to $400 per trip. He wondered if there was a way around it.
He operates a website called RepoFinder.com, and he set about looking for a moving truck for himself. He found one that was owned by a bank, and asked his brother, a mechanic, to inspect it and tell him if it was worth making an offer. “My wife said this was the dumbest idea ever,” Roy recalls. She feared something would go wrong. But after his brother reported that the truck, which had 98,000 miles on it, was in good shape, Roy made a low-ball offer — and it was accepted. He paid the bank with a VISA card with an 8.9% interest rate. The truck did need one new tire, and Roy had to pay for registration, tags and insurance, but he said he purchased less insurance than would have been required if a bank held the note on the truck.
For a time shortly after the move, the truck doubled as a storage unit. And when it was empty, Roy discovered just how popular a moving truck can make a person. He helped a few friends move, and then he advertised the truck for sale on Craigslist. He sold it for $500 more than he paid — enough to cover the new tire, insurance and interest on his VISA card. “It was the best decision I made when we moved,” he says.
So what do these stories tell us about borrowing? In two cases, the credit was fairly inexpensive because the card users had excellent credit (if you’re curious about where you stand, you can get two free credit scores and an action plan for improving them on Credit.com) and were thus offered financing at reasonably low rates. The credit card users understood what they were doing and had a plan to pay it back.
In the other case, the amount borrowed was conservative. (In matters of the heart, it’s good if the head can stay involved, too.) And, to be fair, a little bit of luck was involved. Sherry found work right away. Roy’s truck didn’t break down or get involved in an accident. And Teresa said yes. And responsible borrowing allowed all three to do what they wanted to do, when they wanted to do it.
Images courtesy Sherry Smith, Randy Brunson and Roy Adams
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