This podcaster recently listened to a caller on The Ramsey Show who had purchased an engagement ring using a credit card with a promotional 0% interest offer. His plan? Keep the $11,000 balance on the card while his $25,000 sat in a high-yield savings account earning interest. In theory, it sounded smart. In reality, it was a financial trap that too many of us fall into, rather than simply paying cash and avoiding debt altogether.
Dave Ramsey’s response was swift and direct: “You did a sweet good thing a dumb bad way.” And he’s absolutely right.
When it comes to major life purchases like engagement rings, we often convince ourselves that we’re being financially savvy by chasing promotional offers and interest rates. But the math rarely works out in our favor, and the risks far outweigh the rewards.
The Illusion of “Beating the Bank”
The caller thought he was outsmarting Bank of America by keeping his money in a high-yield savings account while financing the ring at 0% interest. Let’s break down why this strategy falls apart:
- The interest earned on $11,000 over 60 days at 4% is minimal – less than $80
- The mental energy spent managing this debt costs more than any interest earned
- The risk of missing a payment or not paying off the balance in time is substantial
- Banks offer these promotions because they know most people will slip up
As Dave bluntly put it: “You don’t beat Bank of America. The only way you beat Bank of America is staying away from them.
The Real Cost of “Free” Financing
What struck me most about this call was how the young man was so focused on the potential loss of interest income that he couldn’t see the bigger picture. He was worried about dropping below $25,000 in his savings account because his interest rate would decrease from 4% to 1%.
Dave quickly did the math: 4% on $10,000 is $400 per year, or about $33 per month. As Dave said, “You can’t even buy a pizza” with that amount, especially not in New York!
The time spent worrying about this financing arrangement was worth more than any interest he might earn. This is a crucial point that many of us miss: if he had paid cash for the ring upfront, he wouldn’t have had to waste mental energy juggling complicated finances. Our mental bandwidth has value, and complex financial arrangements drain that resource.
Starting Marriage on Solid Financial Ground
There’s something powerful about starting a marriage completely debt-free. An engagement ring symbolizes a promise of commitment and a shared future. Why tarnish that symbol by attaching it to debt?
Dave painted a vivid picture of what might happen next: The fiancée might request money for wedding expenses, and suddenly that credit card balance that was supposed to be paid off quickly starts to linger. One month becomes two, then three, and before you know it, you’re carrying debt into your marriage.
This is precisely what credit card companies count on. As Dave said, “Once they’ve got your head in the noose, they pull the rope.”
The Better Approach
The solution Dave offered was refreshingly simple:
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Write a check today to pay off the card in full
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Cut up the credit card
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Move forward with $14,000 still in savings
This approach eliminates risk, removes mental clutter, and sets a precedent for handling major purchases in your marriage. It’s the foundation of financial peace.
I’ve seen too many couples start their marriages with financial stress because they believed the myth that clever financing is the path to wealth. The millionaire study Dave referenced confirms this: no one got rich by juggling 0% interest offers while keeping money in savings accounts.
The next time you’re facing a significant purchase, such as an engagement ring, remember this call. The next time you’re facing a major purchase, such as an engagement ring, remember this: those who paid cash upfront avoided the stress of debt and gained true financial freedom from the start.
Frequently Asked Questions
Q: Is it ever smart to take advantage of 0% financing offers?
While 0% financing can seem attractive, these offers often come with hidden risks. Most people end up keeping the debt longer than planned or missing a payment deadline, resulting in retroactive interest charges. The peace of mind from paying cash typically outweighs the small amount you might earn by keeping your money in savings.
Q: How much should someone save before buying an engagement ring?
The amount varies based on your financial situation, but the key principle is to save until you can pay cash without depleting your emergency fund. Many financial advisors suggest spending no more than 1-3 months of your salary on a ring, but the most important factor is buying what you can afford without going into debt.
Q: What if I don’t have enough saved for the ring I want to buy?
If you can’t afford the ring you want, you have two responsible options: wait longer and save more, or adjust your expectations to match your current financial reality. Remember that the ring is a symbol of your commitment, not a measure of your love or success. Many couples start with a modest ring and upgrade on a special anniversary when they’re more financially secure.
Q: How does debt impact a new marriage?
Debt creates financial stress that can strain a new marriage. Studies show that money disagreements are among the top reasons for marital conflict. Starting your marriage debt-free gives you more flexibility to build wealth together, handle unexpected expenses, and make life choices without the burden of payments hanging over your heads.
Q: Why do financial experts always recommend those who have paid cash for big purchases?
Because those who have paid cash eliminate interest, reduce stress, and gain full ownership from day one. It’s a simple yet powerful way to protect your financial future and avoid the common traps of credit and financing.
