Q I'm thinking of buying an expensive item for my significant other. Would it be best to pay cash for this item, or should I finance through the store?
Anonymous
I'm going to go out on a limb and assume this expensive item is a ring. Of course, the best financial option is to pay up front with cash. If the purchase can wait, it would be best to save up most, if not all, of the price of the ring. This reduces the overall cost by eliminating any interest you would otherwise incur if you financed the item through the store or personal credit card.
Before taking on any additional debt, you should consider your cash flow and current debt situation. The last thing you want to do is enter a marriage further in debt than you already are. Try not to get carried away with "keeping up with the Joneses."
There are financing options available if you choose to take that avenue. If you are a homeowner and have equity in your home, you might want to consider taking out a home equity line of credit. This is a better option than consumer debt, because the interest is tax deductible up to a $100,000 line of credit.
Most jewelry stores accept major credit cards. So, if you decide all of a sudden that she is the one and you plan on eloping next week, then a low-interest credit card might be the way to go. Some jewelry stores also offer specials, typically during holidays, such as 0 percent for a set number of months with 10 to 30 percent down if you finance through the store.
Be aware that if you choose this option, the interest rate -- when it finally kicks in -- could skyrocket (possibly 20 percent or more).
Sarah Boyd (22)
Q Where is the best place to keep a cash reserve?
Darren, Minneapolis
Assuming you are looking to maintain a true cash reserve, meaning this is your cash for emergencies or for expenses needed in the next two to three years, it's smart to keep this cash liquid. The "price" you pay is that you cannot expect a high rate of return. Depending on when you need the cash, certificates of deposit (CDs) from your local bank might be an option.
You can buy CDs with maturity dates ranging from one month to several years. The rate of return you earn depends on the timeframe you choose. Keep in mind that if you need the cash before the maturity date, there will probably be a penalty to access the proceeds. An alternative is to open a savings account through a company like ING Direct. They are paying 3 percent on their savings accounts.
Kristin Hannemann CFP (30)
Ka-Ching's financial experts at Edina-based Accredited Investors Inc. can be reached at kaching@startribune.com.
