Personal Finances News – Whether to Pay with Cash, Credit or loan
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Unsure whether to dip into your savings or swipe your credit card to cover your next major purchase? Email reporter Megan DeMatteo at megan.dem[email protected] to share your upcoming purchase and question to be part of Select’s new “Cash, credit or loan?” series.
Between the venue, catering, flowers, a dress, the rings and all the various accoutrement — weddings are notoriously expensive.
Although wedding costs went down in 2020, in big part due to many people having smaller ceremonies during the pandemic, couples were still shelling out $19,000 on average. In 2019, the average wedding cost was $28,000, according to The Knot, and only time will tell if the average cost of a wedding will return to pre-pandemic levels.
There are many ways to finance this very expensive event, even if you don’t have all that cash on hand. There’s point-of-sale financing through companies like Affirm and Afterpay, you could sign up for a new cash-back rewards card, or consider taking out a personal loan if you need a significant chunk of cash to pay for a portion of the wedding.
It can be a lot to keep up with, and if you’re not careful monitoring how you’re paying, you could end up overusing credit without having a clear sense of where all that money is going. Before you begin taking on debt to pay for your big day, take a few minutes to make a clear plan.
Select spoke to a few financial planners for their best tips on how to afford a wedding. Their advice varies, but just as every couple has a unique wedding style, there’s no one-size-fits-all approach to financing your forthcoming nuptials.
Here’s their expert advice.
Alicia R. Hudnett Reiss, CFP
Cash, credit or personal loan? Cash, or plan ahead to borrow
In an ideal world, you should have enough saved up enough cash to pay for the cost of your wedding, argues Business of Your Life founder Alicia R. Hudnett Reiss.
“But typically, that’s not done,” she admits.
It takes most people years to save up enough to pay out-of-pocket for a wedding, so it’s not uncommon for people to use credit cards to make up the difference between their cash savings and the actual wedding cost.
But if you want to avoid debt, start saving way ahead of time. Whether you’re newly engaged or know that you want to pay for your child’s wedding one day, start crunching the numbers now to see how long it would take you to save.
“Be realistic,” says Hudnett Reiss. Estimate the total cost, then break it up into smaller monthly amounts you can set aside until you reach that goal.
Then, if you know you’re going to come up short, look for ways to borrow strategically.
“Sometimes you can get a 0% interest promotion,” says Hudnett Reiss, either on a credit card you already have or a new one you apply for. For example, the Discover it® Cash Back offers a competitive introductory 0% APR for the first 14 months on purchases (after, 11.99% to 22.99% variable APR). Apply for the Amex EveryDay® Credit Card, and you might be able to benefit from no interest for the first 15 months on purchases (then 12.99% to 23.99% variable APR, see rates and fees).
Just make sure you pay off the balance within the intro period so you can avoid interest charges.
Another option is personal loans, which might charge a lower interest rate than your credit card. But use caution, since not every personal loan is cheaper, and once you agree to take out the loan you’ll owe monthly payments for sometimes up to seven years.
“If you can’t pay back that loan, the lender can’t take back an asset, such as with a car loan,” says Hudnett Reiss. You certainly don’t want to get stuck having wages garnished or being sued for nonpayment, especially for something non-tangible like a wedding, which has no resale value once the money is spent.
Before you apply for and agree to a personal loan, check what kind of rates and payment plans you qualify for through lenders like LightStream, Marcus and Discover. Or, use a lending platform like Upstart or LendingTree to see multiple lenders’ offers at once.
Cash, credit or personal loan? Credit
“I wouldn’t recommend taking out a loan for a wedding,” says Financial Gym founder Shannon McClay. “Of course, I suggest the client definitely save and have a budget. But then be strategic about using credit.”
For example, if a Financial Gym client loves to travel and has good to excellent credit, McClay suggests they open a Chase Sapphire Reserve card and reap the generous rewards.
“You have to spend $4,000 in the first three months [to earn the bonus], which you’re probably already spending on the wedding,” she says. “Both significant others can get a travel card; that way you can really maximize the bonuses. And then you get all these travel rewards that can pay for your honeymoon. You ‘hacked’ your honeymoon, just by paying for the wedding.”
A few things to watch out for: Before you swipe, double check with vendors to see what their credit card processing fees are. Some might charge an extra 3% to 4%, so you’ll want to pay those vendors in cash when possible.
Also be extra aware of your budget if you plan on using credit cards. McClay’s strategy works best when you have the cash to pay your card(s) off right away, especially if you plan on opening multiple cards in less than a year’s time. The goal is to earn a free honeymoon, not spent the first year of your marriage drowning in debt.
Last, McClay also reminds couples who use credit to finance their wedding to keep plenty of cash on-hand for the big day.
“You want to have cash for tipping servers, bartenders, people like that,” says McClay. It’s also customary to tip hairdressers, photographers, the delivery/setup crew, venue attendants, drivers, etc. Some vendors might also require final payment on the day of your wedding, which is easiest to do with cash.
Jeanne Fisher, CFP
Cash, credit or loan? Cash and credit
Everyone has their own opinions on how to pay for weddings, says Nashville-based financial planner Jeanne Fisher. While some don’t believe in borrowing money to fund a celebration, others consider weddings to be the most important day of a person’s life, and therefore well worth the financial risk.
“Only you know what you don’t have,” says Fisher. If you don’t have the cash to pay for wedding costs outright, be honest about how much you can realistically put on a credit card so that you don’t go too much into debt.
“I would not recommend taking out loans to pay for a celebration,” says Fisher. “You have to pay them back, even if the marriage doesn’t last.”
But on the other hand, “the role of a financial planner is not to tell you what your priorities are,” says Fisher.
Therefore, if you know weddings are a big deal for your family, prepare for it. Start saving, and research credit cards that will reward you for your expenses.
“I’m a huge fan of maximizing points and rewards. That’s a great thing to do,” Fisher says.
Worried about overspending? There’s a trick.
“You can set your own maximum on your credit card,” advises Fisher. Call your card issuer and ask them to lower the limit to what you consider reasonable. That way, you aren’t as tempted to add on extras in all the excitement.
As for budgeting, Fisher has a tongue-in-cheek tip for keeping wedding costs low: “I would also say the longer you’re engaged, the more expensive the wedding.”
Keep the engagement short, be decisive about what purchases actually matter to you and avoid putting too much weight into other people’s opinions.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Personal Finances News – Whether to Pay with Cash, Credit or loan
Tags: Personal Finances News