With Valentine’s Day just weeks away, those ready for commitment but short on cash may be sweating the cost of getting an engagement ring in time for a Feb. 14 proposal.
According to wedding industry research company The Wedding Report, the average cost of an engagement ring in 2011 was just more than $3,200. Fortunately, if you haven’t been able to sock away enough cash, there are several ways to make the cost and payments manageable.
1. Get a store credit card.
The advantage of this option is that many stores offer to defer interest (often for six to 18 months) and may offer an off-the-top discount on the total price of the ring.
The key here is the word “defer,” says Bill Druliner, Midwest regional manager of GreenPath Debt Solutions. Interest is building up in the background as the months go by, and if you don’t pay every bit of the ring off by the date specified, you will get zapped with that interest retroactively — often close to 25 percent — on the balance you had accrued each month.
The offers at major chain stores are similar. For instance, Kay Jewelers offers a plan with its Kay Card for no interest if you put 20 percent down on a minimum purchase of $500. If you don’t pay it off in 12 months or are late with a minimum payment, an annual percentage rate (APR) of 24.99 percent (lower in some states) will be charged from the date of purchase. Jared offers similar terms with a minimum purchase of $1,000.
Keep in mind that getting a store credit card could ding your credit report. Opening another account will count as an inquiry, which can lower your score. The new account can also lower the average longevity of your credit accounts, which also lowers your credit score. If your only other credit account is 10 years old, for instance, you just cut your average to five years.
Another drawback with a store credit card is that, in many cases, the store gives you a line of credit in the exact amount of the purchase. That means you’ll be maxing out your available credit, which can hurt your credit score, says personal finance expert and bride-to-be Farnoosh Torabi, host of “Financially Fit” on Yahoo! Finance.
“Your credit utilization is an aggregate, so if you have open lines of credit you’re not using, it’s going to be in the mix of that,” Torabi says. “If [a store card] is your lone line of credit, it could really make an impact.”
2. Use a regular credit card.
If you’re going to pay off the ring in one or two months, using a regular credit card is a great idea, Druliner says. This buys you some breathing time and allows you to rack up some rewards points. Some credit cards will offer protection if something happens to the ring. Be sure to read the terms that came with your credit card agreement.
One advantage to paying with a regular card as opposed to a store card is that you wouldn’t have the deferred interest problem.
“It’s a little less risky in that you won’t see the interest blow up on you at the end of a year,” Druliner says.
But you should still have a plan to pay the ring off to avoid regular interest charges each month.
3. Take out an installment loan.
An installment loan requires regular, predetermined payments until the debt is paid off– like a car loan. These types of loans generally come with interest rates in the teens, according to Druliner.
“On the one hand, that can be good because credit card debt can lull you to sleep with the minimum payments,” Druliner says. “… whereas an installment loan will force you to pay it off within a fixed period of time.”
Of course, if something comes up and you can’t make a payment to the bank or credit union, there’s less flexibility. If a payment is more than 30 days late, it can show up on your credit report, Druliner notes.
4. Shop around.
Another consideration is whether to go to a national chain store in a mall or seek out independent jewelers.
Mall jewelers are more likely to offer financing deals and their own brands of credit, says Antoinette Matlins, gemologist and author of books including “Jewelry and Gems: The Buying Guide.”
The bad news about major retailers, she says, is that the markup can be as much as 300 to 400 percent.
“You may find that [an independently owned store’s] regular price, no sale, is less than the 50 or 60 percent sale price at one of these other places for the same quality diamond,” Matlins says.
Even after you’ve chosen the seller, there are ways to keep the cost down and have manageable payments. Although “the average salesperson is not about to tell you how to get a ring that ‘looks just like this one’ for half the price,” according to Matlins, there are techniques for getting a good deal.
Take flaws in the diamond, for example. There are 11 grades on the flaw scale, according to Matlins.
“You can come down seven grades and see absolutely no difference with the naked eye between your diamond and one that’s flawless,” Matlins says. “But the cost difference is dramatic.”
Of the “four C’s” (cut, color, clarity and carat weight), Matlins recommends focusing on the clarity grade.
“It will give you more flexibility in your budget and have absolutely zero impact on the beauty of the diamond,” she says. “Even a diamond at the worst clarity grade is still 97 percent clean or clear.”
You can find out what to look for at the Gemological Institute of America site. Often, people pay more for what they think will make the most sparkle — but won’t, Matlins says.
“People associate the sparkling quality of a diamond with the clarity grade and … that’s absolutely not correct.”
Instead, the sparkle has everything to do with how it’s cut, according to Matlins.
If you’re buying a diamond of at least three-quarters of a carat, Matlins advises shopping for the diamond before choosing the setting. That way, you can place the diamonds side by side and see for yourself how the stone in your budget compares to others.
5. Think twice about starting marriage with ring debt.
That word “budget” is important, even in the throes of romance. Despite discounts and financing deals, the best option for this kind of purchase is cash, Torabi says, even if that means removing the element of surprise.
In other words, don’t deplete your savings for a ring the bride may not be thrilled with, especially in this economy. Modern couples don’t have to follow all the traditions.
“I’m hearing about brides and grooms dividing the costs of the ring,” Torabi says. “Couples in their late 20s may have student loans and may not have full-time jobs. To throw [the cost of a ring] into the mix could really shake things up.”
Besides, your future life partner should be the last person who wants you to go into debt.
“If it’s going to be something that’s going to get you into a loan situation or a credit card situation, I don’t think any bride would want that,” Torabi says.