The Cost of Instant Gratification

Credit cards make it easy for us to buy now and pay later. This mindset is pervasive and dominant in the United States, and it keeps many Americans financially imprisoned. I can still remember when there was no credit card, and I had to save for what I want.

Morpheus offers him the chance to learn the truth about the Matrix. Neo accepts by swallowing the red pill, and abruptly wakes up naked in a liquid-filled pod, his body connected by wires to a vast mechanical tower covered with identical pods. The connections are severed and he is rescued by Morpheus and taken aboard his hovercraft, the Nebuchadnezzar. Neo’s neglected physical body is restored, and Morpheus explains the situation.

Buy Now and Pay Later (Blue Pill)

Last night, I was looking around the Discover Card Account Center and found a neat little tool that shows my “Purchasing Power.” I plugged in some numbers, which you can see in the image below.

Basically, I can charge $5,000 to my Discover Card and pay back $185 a month for 36 months (at my current interest rate). That sounds great, until I do the math. At $185 a month, I’d end up paying $6,660 for my $5,000 item. In other words, the cost of instant gratification is $1,660. I think that’s steep.

Save Now and Buy Later (Red Pill)

Now let’s see what’d happen if I save $185 a month instead. Assuming a modest 5% interest rate, it would take about 25.5 months to save $5,000. Better yet, the monthly contributions only add up to $4,810, so I saved $190!

Sure, waiting two years is not as exciting as instant gratification, but I think saving $1,850 feels pretty darn good.

So, which one would you choose?


About the Author

By , on Apr 2, 2008
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (20 Comments)

  1. Ryan S. says:

    Man, oh, man, do I know about instant gratification….

  2. Andrew says:

    I’m 21 years old and after all the horror stories I’ve heard (and witnessed) I never plan on going into debt except for maybe a mortgage. My parents own a rental business of about 30 houses and during my youth they would always have arguments because they had a ton of debt. My dad paid for most of the down payments of the houses he bought via credit card. Because of the housing boom they were able to sell a few houses and pay off their credit card debt, but I shudder to think what might have happened if not for that.

  3. Pinyo says:

    @Mike — Thank you for the suggestion, I will check out Fatwallet (esp. now that Pete seconds it).

    @Finally Frugal — I think that’s a great accomplishment. Congratulation.

  4. Pete says:

    I have to second the suggestion for checking out sites like You can find great deals on items online and save a ton of money.

    As far as buying on credit – I think it is usually not a good idea. We try not to buy something with a credit card unless we know we can pay it off in 1 or 2 months.

    Normally we just try to save up.

  5. When I think of all the piddly items I put on credit over the past 20 years (and some not so piddly, of course) I cringe at the ‘real cost’. I never paid off my credit cards on a monthly basis, although I always promised myself at the time of purchase that I would. There have been times in the past when I’ve owed up to $25,000 in credit card debt alone—now I’m down to less than $3,000, and I swear, this time will be the last. Posts such as this one help me remember that when I use a credit card without paying it off I end up spending more money over the years on an item I might use for 6 months.

    thanks, Pinyo!

  6. Mike Hunt says:

    I also buy through places like Fatwallet. Not only do they have a hot deal forum but when linked via them you receive cashback from many sites.

  7. Pinyo says:

    @Shawna — good point, especially for electronics. I never buy the latest and the greatest. Always wait for the 2nd or 3rd price cut. 😀

    @Bunny — I do the same thing!

    @Make Friends — I wish I have time to find the exact dialog — that would have been cool.

    @Mark — I don’t know. I don’t believe in buying electronics on financing. Anyway, you could take advantage of 0% transfer?

  8. Mark says:

    I actually bought a laptop in January through Dell Financials and when I saw the first finance charge which was a measly $28 dollars on a 1K purchase, I was shocked! I haven’t paid a finance charge that high in years so it actually enouraged me to increase my payment to pay it off sooner than later.

    Overall, I would expect to pay less than $100 in interest on a 1K but it is good to be aware about how much more one would have to pay on something that comes with interest.

    It makes no sense to pay extra for something like electronics that will become oboslete in less than 2 years.

  9. Faron Benoit says:

    I do the same as Bunny. I use my credit card for 85% of my purchases. The trick is to treat it like cash and never be afraid to put some items back on the shelves if you’re over your budget.

  10. Jonathan says:

    great analogy from the Matrix, personally I’d take the red pill

  11. Bunny says:

    Red Pill. I use my credit card like a debit card/cash. I don’t overspend and pay it in full every month. I like the convenience of having plastic when I don’t have time to withdraw cash and stuff.

  12. shawna says:

    If you are saving up for something you also get the added bonus of a possible price drop. I was hoping that would happen when I got a Wii. I waited a year- no price drop 🙁 but no finance charge either 🙂

  13. Pinyo says:

    @Plonkee and Mrs. Micah — good discussion 🙂

  14. Mrs. Micah says:

    I agree, plonkee. Sometimes there’s an opportunity cost (like if my laptop breaks I’ll need a new one!) but a lot of things purchased on credit aren’t necessary or urgent. And with electronics, the price may go down in that time too (of course, new models will come out, but it depends on what you’re buying).

  15. plonkee says:

    There’s also the opportunity cost of not having the item. Usually this doesn’t outweigh the interest you pay, but it might – especially in an emergency.

  16. Pinyo says:

    Not much longer actually. 26 months to accumulate about $5,000 and saving about $65.

  17. Pinyo says:

    @Vered – That’s fine. If you are paying off your credit card in full each month, that means you already saved enough to afford the purchase. In fact, I think using credit cards with cash back reward is a great way to improve your finances (as long as you pay if all off each month).

    @Jaynee – That’s great. Putting your foot down and decide to pay off debt is the first step toward financial freedom. However, once you pay off your credit card debt, I think it’s fine to use it as long as you can pay the balance(s) off in full each month.

  18. Vered says:

    Wow. That is indeed steep. Personally, I always pay my credit card statements in full. I do have a friend who stopped using credit cards altogether. She uses cash or debit cards – a good way to make sure she uses money that she actually has, instead of borrowing and paying ridiculous interest to the credit card company.

  19. Kevin says:

    That is quite the steep price to pay. How long would it take you at 3% (current savings account rates), and how much would you save?

    I love Matrix related posts. More of that and I’ll never leave 😉

  20. Jaynee says:

    In December 2007 I made the decision to pay off my debt and try to live cash-only. In that time I’ve only used my credit card three times, and for purchases that didn’t allow me to use my PayPal account. That’s a significant improvement for me since before December I’d think nothing of charging whatever I wanted.

    It’s going to take me at least three years to pay off all of my credit card debt, but I’m confident I can do it. Fortunately, my husband is much more financially responsible than me, so he can help keep me accountable.

Leave a Reply

Your email address will not be published. Required fields are marked *



The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.


Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.