Grow Your Savings by Paying in Full

In the past six months, I've spent more money on personal development than I have in my entire life. I've also spent considerable amounts on laptops and on a holistic wellness program. Now that I'm somewhere in the third stage of personal finance, I see the value in investing, and I'm not just talking about the stock market.

What I started to notice was how having my finances in order was creating more savings. In just six months, I've saved more than $1,250 on the costs of goods and services because I was able to pay the total amount upfront.

No interest
There are a few ways that paying in cash (or with a credit card paid off in full) can save money that astute GRS readers can easily identify. For one thing, paying in cash means no interest. The higher the interest rate, the more you pay. Credit cards also present the possibility of late fees and other charges if you don't pay the balance every month.

Negotiation power
I haven't actually used the bargaining power of cash myself, but I read about it in researching this article and feel it's important to mention. (I'm awful at negotiating. It's something I'm trying to learn.) Basically, if you are dealing with someone who is in a position to negotiate price, you can get a better deal by offering to pay in cash. For small businesses, cash is cheaper, faster, and a sure bet. No personal checks to cash (that could bounce) and no credit card fees. The transaction is completed on the spot.

Contrary to popular belief, one time that cash is not king is negotiating for an automobile. In fact, mentioning your ability to pay in cash may mean you'll pay more. Car dealers make more money when you finance through them. If you announce your intention to pay in cash, they'll be less likely to lower the price. Agree on a price and keep your payment method to yourself until you're in the finance office.

The lesson here is to consider the business and the person with the bargaining power. Is it in their best interest that they receive cash? If so, it never hurts to try to negotiate. I say that to you, the readers, as well as to myself!

Forgoing payment plans
This is the method that has helped me keep the most money in my online savings account the last several months. A quick rundown:

  • In November, I enrolled in a yoga teacher training program. I could pay the total amount upfront, or I could elect a monthly payment plan. At the end of the training, the monthly plan would cost $500 more than paying in full.
  • In January, I joined Ramit Sethi's Earn 1K program. Earn 1K had a similar structure, where paying in full was less expensive in the long run than monthly payments.
  • Last month, I started going to a new wellness center to address shoulder and back pain, and the start-up program was 15 percent less if paid in full.

When I added up the savings, I started to see how savings begets savings. When you have a handle on your finances, there are many instances where you can pay less. I imagine that wealthy people, or at least those who were taught good money habits at an early age, would probably laugh at my little revelation, finding it hilariously obvious. Oh well, better late than never, right?

This may not be for you
I think this concept, while useful, also deserves some words of caution. A few guidelines on the tactic of paying in full:

  • If you are still paying off debt, paying in full may not be appropriate just yet.
  • If you can only pay the full amount using a credit card that you can't pay in full, this is definitely not appropriate for you. And it doesn't even count as paying in full.
  • Only pay in full if you know for a fact that you will use the product or service. For example, if you never stick to an exercise plan, think twice about buying a full year of personal training sessions. Start smaller to establish good habits.
  • If you do commit to a year of training sessions (or anything else), make sure there's a money-back guarantee or loopholes if your situation changes. In the yoga program, if I had to quit, I'd be refunded the percentage of the course I didn't attend. Earn 1K offered a money-back guarantee. Terms should be fair to both buyer and seller.

Feel free to add more guidelines in the comments if I've left anything out, and if you have an example to share, share it!

J.D.'s note: Yes, yes, a thousand times yes! I've noticed this myself, and it's one of the best parts of being out of debt. Plus, when you have control of your finances, you're able to take advantage of unexpected deals and opportunities.

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Adrian
Adrian
10 years ago

When it comes to saving money, I could not agree more with April’s concept. While it does take some time to build up “lump-sums” they are EXTREMELY effective in eliminating interest and prolonged period payment plans. In relation to J.D’s article yesterday, often paying outright — even sometimes for the more expensive service — can save you hundreds of dollars in the long run. And it isn’t always about the large purchases either, certain local grocers etc. (as was mentioned in a “farmer’s market article” by Sierra Black, will give mass discounts when paid in cash in order to avoid… Read more »

Meghan
Meghan
10 years ago

I’m taking french classes at the Alliance Francaise in Toronto and they have a deal where you can save money by enrolling in two or more consecutive classes and paying in full upfront. I knew that I wanted to take the A1.2 course after I finished the A1.1 course so I was able to save $60 on my tuition fees. If your work schedule is consistent and you know you can commit ahead of time it’s a good deal.

Roman Soluk
Roman Soluk
10 years ago

You are definitely right! Paying in full really helps to save your money, especially now in these hard days. Very helpful post! Thanks for sharing! 😉

Mike Choi
Mike Choi
10 years ago

I have car insurance through Geico and if you pay month to month they charge an additional $4. However, if you pay for the full 6 month term, you can eliminate that $4 fee. I pay in the full amount for the 6 month cover because car insurance is something I need every month. With that being said I can’t understand why people don’t/can’t pay for the full 6 months. If you really can’t afford to make your insurance payment for the entire 6 months perhaps you should think about downsizing your automobile to contribute even more to your savings.

Jan
Jan
10 years ago

I have to disagree with the cash and cars. In the middle of last year – when we showed up with cash and a print off of the lowest we found the car in a 200mile radius- we drove off the lot $3500 off a small car. Credit was very tight and cash was king!
My daughter offers 2% off of her small business if you don’t use credit cards- that is her processing fee.
FOr those who care- VISA has the smallest processing fee- American Express has the largest.

Adam
Adam
10 years ago

We recently did this with life insurance. Our initial quote was monthly, but I asked about an annual payment instead and that was less, so we pay it annually instead of monthly. Not a big deal for us, but if you don’t budget well a $400 bill one month might throw you off.

Mae Jean
Mae Jean
10 years ago

I am installing a vehicle and paying it monthly. If I can’t pay on the right time, there will be an interest to my monthly payment. And then I realized that if I pay it full I could have saved more money in my pockets. And I think, April is right, paying in full is better.

Money Green Life
Money Green Life
10 years ago

yeah, fir as long as I owned a credit card, I’ve always paid my balance in full every month. I’ve never carried a balance. I see so many friends of mine paying ridiculous amounts in interest every month I just don’t get it. they tell me they rather pay little every month than paying it off all at once. go figure.

Elizabeth Howell
Elizabeth Howell
10 years ago

Great advice. Like April, I’m trying to grow my freelance business through investments and paying upfront. I paid my full annual fee for an online storage service, and Skype, and saved quite a bit of money both ways. These are both services I use nearly daily. In the case of items I needed in bulk, like domain names, I bought from registrars that encouraged bulk pricing or gave you a deal on items such as privacy if you bought more than a certain number of domains. I’m careful to make sure I’m actually going to use these services for my… Read more »

David
David
10 years ago

My strategy to obtaining wealth can be summed up in one simple rule. “Never borrow money to pay for a depreciating asset.”

Ricardo Patrocínio
Ricardo Patrocínio
10 years ago

“If you do commit to a year of training sessions (or anything else), make sure there’s a money-back guarantee or loopholes if your situation changes. In the yoga program, if I had to quit, I’d be refunded the percentage of the course I didn’t attend. Earn 1K offered a money-back guarantee. Terms should be fair to both buyer and seller.” I like this advice, because we have always a choice. How obvious this may seem, I had not realised it yet. When I go to a gym, they want me to pay a full year in advance, with no money-back… Read more »

HollyP
HollyP
10 years ago

Not all wealthy people do know this.

I have friends whose household income is twice that of my family’s. I was surprised to find that our friend has not paid off his grad school loans and was taking a loan to buy a new car. MrP graduated from a similar program the same year, and MrP’s grad school loans were paid off several years ago. We also have paid cash for our cars.

RyanG
RyanG
10 years ago

I will echo some of the other posters regarding insurance payments. Progressive offers ~$50 off your 6 month car insurance bill if paid in full, and many other companies charge a monthly fee for monthly billing. I recently purchased an umbrella policy (also from Progressive). The cost was $160, and they offered to let me pay half at the time, and the other half a month later for a $5 fee (or more, can’t remember). I almost laughed at the nice lady on the phone. I couldn’t imagine being in a situation where I was so tight on money that… Read more »

Jason
Jason
10 years ago

@Holly
Most people with large income are not Wealthy. They are UAW (Under Accumulators of Wealth – Millionaire Next Door) or they are HENRY’s (High Earners Not Rich Yet).

In both cases lifestyle inflation is a big factor. No longer is a Camry or a Accord acceptable you need a 5 series. Can’t send your kids to state school/college only private. And those big houses with big mortgages have even bigger maintenance cost.

Just think about it that way.

CathyG
CathyG
10 years ago

I think a lot of it comes down to knowing whether or not you will actually use the service, and knowing/trusting that the business will still be there throughout your term.

You hear a lot of warnings about prepaid healthclub memberships, but I love mine. I paid $900 in advance for a 3-year membership, with subsequent renewals being $50 PER YEAR!! I’m in my 7th year and still going strong.

Everyday Tips
Everyday Tips
10 years ago

I prepay whenever I can. I usually research something well enough to know if I want it or not. If I don’t think I will use it for a year, then I don’t need it for a month. When I bought my last car, I financed it to get the 1,000 dollars off they were offering for using their finance plan. I then paid it off a month later. I guess you just have to be aware of what programs are out there. I will be careful offering up cash right away now though, as you do raise a good… Read more »

Rex Huston
Rex Huston
10 years ago

I recently did this with my auto insurance, saved 15% by paying a year in full! I wish I could get 15% return in my savings account.

Melanie
Melanie
10 years ago

@ CathyG – That is awesome! I am always so impressed with people who can take advantage of those types of savings. For me, it would have probably been a waste of some of the money because my life isn’t that consistent.

partgypsy
partgypsy
10 years ago

I am doing this for an expensive dental problem not covered by insurance. Once I decided to have it done, the oral surgeon offers either 4 or 5% off if you pay at the time of service (versus a payment plan). I have been saving for the procedure. I then charge it to my credit card, which gives 1% cash back benefits, which I then pay out of savings. I could have saved even more if I put that amount aside in my flexible savings account, but broke the tooth in Jan after the enrollment period.

Afzal
Afzal
10 years ago

Good post and paying cars with cash does work. You can negotiate and get on the spot discount and save money by not paying any interest. This applies to any product which depreciates in value.

Adam
Adam
10 years ago

Hmm I can save a lot of money by paying cash and not getting a receipt for some expensive purchases…like home renovations for instance.

But egads, morally I feel like the cash only under the table deals are not worth the frugality of saving a few hundred bucks. To each their own.

Shara
Shara
10 years ago

I would add that one should also consider the time horizon. For example if you buy a ton of stamps that money is just sitting in your desk until you use them. If you don’t use some of them for five years that money was sitting there, not doing anything, for five years. @Adam I don’t think April is talking about avoiding paying receipts tax but the convenience and guarantee of payment some businesses are willing to give a discount for. No one should EVER have a home renovation or repair done by licensed individual that isn’t completely documented. This… Read more »

ZIPG8R
ZIPG8R
10 years ago

Another place you can save money by paying in full is with memberships to your Alumni Associations. You can save even more money if you become a member right after graduation (you usually have a 4 year window), pay in full and get the Lifetime membership! At my alma mater you can pay $50/year ($35/year as a recent graduate) for a Joint (husband and wife) annual membership or you can pay $1000 up front for a Joint Lifetime membership for $1000. If you can’t swing the $1000 up front they will let you spread it out over 4 years, but… Read more »

Dollars Not Debt
Dollars Not Debt
10 years ago

Do what Grandma did, pay cash! Avoid the credit cards, even the zero percent interest trap. Millionaires don’t use payment plans for a reason…it’s a trap into allowing you to spend more money than you can really afford. If you can’t pay for it now, you can’t afford it yet!
Dollars Not Debt

Jean
Jean
10 years ago

@ Adam: So I guess the lesson you have to offer is … ask for a receipt when you pay cash. Good point. I’ve found that several services I habitually paid on a monthly basis– and that seemed to be set up only for monthly payments — offer reduced charges for annual payments when you poke around on the Website or call customer services. Magazine subscriptions, dvd club memberships, insurance policies, telephone/Internet services, I’ve gotten better deals on all, and the subscriptions and memberships often let me suspend the membership for weeks at a time when I’m not likely to… Read more »

ebyt
ebyt
10 years ago

Good post. I definitely agree with what you say. I’ll just throw in another instance where paying cash won’t necessarily get you a discount – at a large furniture or electronics store, or basically any store that offers a store credit card. Same principle as buying a car – they make $$ off of interest and finance charges. In these types of situations it is best to negotiate. You can ALWAYS get a discount if you’re buying furniture. Electronics have less of a markup, but usually you can get the store to throw in something free or take the equivalent… Read more »

Marian
Marian
10 years ago

For years we would put as much down as possible on a compact car and then pay by the month for our insurance w/ interest rate of 18%. Currently we have no car payments and have paid our insurance in full for each of the last two years. When we next buy a car we’ll put down a bit less so that we can avoid the interest on car insurance which is much higher than the interest on a car loan.

Nancy L.
Nancy L.
10 years ago

Nice article, April! 🙂 When I decided to get out of debt, the very first change I made was to enact a “no new debt” policy. I began delaying purchases until I had the cash upfront, so that I wasn’t adding to my problem. From a logical, rational standpoint, it’s pretty easy to understand why this is the “better” approach, for all of the reasons April enumerated above. What I didn’t expect was how empowering paying cash feels. If you’ve never made a big ticket purchase with cash on hand, it totally feels different than when you just slap it… Read more »

NP Jara
NP Jara
10 years ago

April, when paying off credit card debt, one may consider credit cards with long term balance transfers and low interest on balance transfers so they can save from the higher interests of their other credit cards.

Budgeting in the Fun Stuff
Budgeting in the Fun Stuff
10 years ago

Paying in full saves us on our car insurance. Plus, I like the feeling of not owing anybody the rest of the payments. I cannot wait to get my husband’s car paid off this year and then tackle the house loan. Being financially in control and debt free is going to feel awesome!

Golfing Girl
Golfing Girl
10 years ago

We recently had to have termite treatment and pest control. I was able to choose from 90 days same as cash, paying up front to save 4% or putting on the credit card to get 1.25% cash back. Having the full amount sitting in the bank made it nice to be able to choose between the options. We decided to do the credit card (paying it off of course) so that we had the option to cancel the ongoing service without losing anything. Some services look at you like you’ve got two heads when you ask if they offer a… Read more »

Janet
Janet
10 years ago

We’re trying to instill in our son the same financial values we hold. Last summer, he worked one day a week in the store of a family friend (he was not yet 16) and was saving his money for a much-longed for IPod Touch. He diligently saved and when he had enough, we drove to the Apple Store where he proceeded to hand over his cash (actual cash). The store clerk could not count it. How sad is that? He actually did not know how to count cash! His explanation? Everyone pays with a credit card.

JenK | Sex and Money
JenK | Sex and Money
10 years ago

Car dealers make more money when you finance through them. If you announce your intention to pay in cash, they’ll be less likely to lower the price.

My last 2 car-buying experiences we financed the car through the dealership with no pre-payment penalty.

We then paid the loan in full a few months later.

chacha1
chacha1
10 years ago

Here’s a suggestion of one place NOT to pay in full: the dentist’s office. If they request payment up front for treatment covered by insurance (before they even make the insurance claim), walk away. I ended up paying full price for some minor dental work that the office later claimed for; my share should have been half what I paid, based on what I was quoted. (The dentist had alleged that my treatment was an “upgrade”.) I’m getting a cleaning there this summer and when I walk out it will be with a copy of my file so I can… Read more »

Stephanie
Stephanie
10 years ago

Small business owners love cash. I negotiated a lower rate with the cleaning service that does my apartment every two weeks. Because it’s very small, they are able to finish in only 1 hour where they normally only book 2 hour minimums. When I agreed to pay in cash up front, they agreed to squeeze me in on any hour that day that works for them. I get a better deal by being more reliable. A win-win.

unami
unami
10 years ago

I keep forgetting I see some things more clearly than others, so when I read something like “forgoing payment plans”, it doesn’t occur to me right away that you’re talking about plans that AREN’T interest free 🙂 The only things I’ve paid interest on since the end of 2001 (my first full year out of college) are my car (paid), student loans (paid), and my mortgage. Every other purchase I’ve made (tv, living room furniture, bedroom furniture, stuff to fill my new house, laptop, etc) has been 0% financing, paid off in full 1 month before it runs out. Whenever… Read more »

Miguel
Miguel
10 years ago

I also want to add to the caution section on this article. I pay my auto insurance company in full for a 6 month term and that saves me money. However, if you find a better rate at another auto insurance company in the middle of your policy, you will most likely have to pay a termination fee to cancel early and it might eat up the savings you think you’re going to get with the other company. So be sure to shop around first and read the terms and agreements.

Stephan
Stephan
10 years ago

i have owned a credit card since i was 18 and have always paid in full every month. I think its important to note that paying with cash or credit, if you cant afford to pay for it in full, you shouldnt be buying it in the first place. Take a car for example. If you dont have 10000 to buy that car, you shouldnt take out a loan for that car and pay 13000 over 5 years.

Aleks
Aleks
10 years ago

I think its important to note that paying with cash or credit, if you cant afford to pay for it in full, you shouldnt be buying it in the first place. Take a car for example. If you dont have 10000 to buy that car, you shouldnt take out a loan for that car and pay 13000 over 5 years. Absolutely. It amazes me when people on this site justify their car loans and talk about schemes to pay less interest. Imagine what people who don’t read this site are doing! You may need a car, but nobody needs a… Read more »

Alexis
Alexis
10 years ago

CONGRATS! Its definitely an very empowering feeling to not have to sign a loan or pull out a credit but to pull out the cash & pay it up front! Dave Ramsey is famous for saying “if live this no one else, later you can live like no one else.” Keep up the hard work & saving!

Brenda
Brenda
10 years ago

And yet another way to save because one is financially aware. The only other caution I would add: If paying in full now, means you will or may have to incur extra charges (interest, late fee, etc.) on something else down the road, then you aren’t actually saving money — and probably aren’t quite to the point in your financial recovery to benefit from paying in full. For example, you have the $500 now to pay for 6 months of insurance and avoid the $5 per month payment fee. However, next month you have a dip in income or some… Read more »

William
William
10 years ago

Good post. Great discussion! When you are in a situation where you can pay cash for a product or a service, you simply have more choice. Sometimes buying used is a much better deal. Autos are a great example. I think many people finance big ticket items simply because they can’t really afford the alternative. What if the used car breaks down? Then what? Financing a new car gives you a warranty but you certainly pay for it. Am I advocating only buying used cars and paying cash for them? Why yes, I am. Forcing oneself to go out there… Read more »

Bill
Bill
10 years ago

This article got me thinking. I have no debt except for a mortgage. However, by using the credit card and paying it off monthly I’m still wasting money I could be saving. Even if I don’t pay interest I’m still spending more than i would if I had to go get the cash.

Steaming Pile
Steaming Pile
10 years ago

I would think negotiating the price of a new car would come BEFORE deciding upon a payment method. I would make that very clear to the salesman up front.

Kate
Kate
10 years ago

Just one thing that is a bit of a pet peeve for me…those who keep talking about “owning” a credit card, nobody owns that card but the bank/company that issued it. And if you carry a balance without paying it off every month, it actually owns you.

*climbing down off my soapbox now*

Adam
Adam
10 years ago

Great post! I see few examples where if you can not pay the full amount in cash/debit, then you probably should not be buying it. Also, the psychology of paying for big ticket items with actual physical cash (and not plastic) will definitely make you think twice if you really need the product.

LisaD
LisaD
10 years ago

I always try to pay things in full. But sometimes there are incentives to finance, or charge, in which case I do and then promptly pay it off.

Sue
Sue
10 years ago

We have always paid car and home insurance as a lump sum, as well as our property taxes. We are always offered “convenient” monthly payment plans, but find that we can just as conveniently budget for ourselves and save the interest charges.

Our home alarm system recently offered us one month free if we prepaid the annual amount. I’m all for businesses that reward clients who have learned how to handle their own finances responsibly.

Tom
Tom
10 years ago

Payment plans flat out scare me. I haven’t bought anything yet that I haven’t been able to pay in full.

John Doe
John Doe
10 years ago

Just a quick question, what about situations where the amount is pretty sizeable? Wouldn’t it make more sense to take the savings, invest them in an instrument that earns more than the payment plan interest rate and then pay installments?

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