Don’t you love buying a new car? There’s something empowering about strutting onto the showroom floor and picking out your car. And any excuse will do. I remember one time telling my wife we should buy a new car because we would soon need a new set of tires!
A mindset like that leads to trouble. I learned you could buy your dream car even if your old one wasn’t paid off. The very nice finance manager would roll my excess debt from your old car into your new car loan. I took advantage of this privilege several purchases in a row. Before I knew it, I drove a car worth $8,000 less than I owed on it.
Here’s what I learned the hard way. NEVER NEVER borrow money on a depreciating asset. If you finance $20,000 to buy a car you just made the most tragic financial decision possible. You are paying interest on an asset that is plummeting in value.
As long as you have a car payment you will struggle to get ahead in your finances. [Click HERE to Tweet]
I’m going to do you a favor. I’m going to show you how to crawl out from under your car payment so you can get traction on your finances.
Here’s what I did. I sold my car for as much as possible but fell $8,000 short of the amount needed to pay it off. I went to the bank and got a signature loan for $8500 to clear the title. Then I went shopping for another car. I bought a very old rusted out Honda Accord for $700 with 145,000 miles on it.
I no longer had a $400 a month car payment but now I needed to pay back the signature loan. I used the monthly car payment money, added some to it, and paid off the signature loan in a year. Yes!
The beat up Accord? I drove it for three years and put 100,000 miles on it. Yes, it was my only car. The air conditioner didn’t work. The power window on the drivers side failed. And one time, while turning a sharp corner, the front wheel fell off.
You didn’t think this would be easy did you?
But think of what I accomplished. After one year I had no car payment and the note from the bank disappeared. Think of your car payment and multiply that by 12 months. Ask yourself this question, “What could you do with the money saved from your car payment?” In my case it amounted to an extra $5000 each year. Sure, there were repairs. But at the end of the year I had thousands of dollars to spend on other things.
You can do this. You must do this if you want to get ahead financially. And if you happen to be close to retirement it’s a no brainer. It’s not easy but you can make it happen.
Since buying that Accord years ago I’ve always paid cash for my cars. I keep a thousand or two handy in case my current car dies. Oh. That reminds me. This Monday I head to Michigan from Arizona in my rusted out minivan with 166,000 miles on the odometer. It should be an interesting trip.
I remember the “leaving of the wheel” episode. I laughed so hard my sides hurt! I support your wisdom. We drive a 13 year old car with 135??? miles to it’s credit. It has been free and clear since 2005 and all we have into it now is necessary repairs. As long as it goes down the road and gets us to and from our destination we are good. We keep our “emergency fund” in CD’s so that we can’t get to it easily, on a whim. Makes us seriously consider any purchase before dipping into cashing in a CD. You know there are always penalties to be paid if you drawn out the money early!
To me a CD is something that plays music! Thanks for sharing!
We bought (financed) my truck new…in 1994. Though it’s now to the point of more repairs than I like to make, it’s still working, and has never left me stranded.
We bought our current SUV new in 2005, using money from sale of our house. It’s not been as loyal as the truck, but still a decent vehicle.
With my husband dead for several years I don’t need two cars. One thought is to sell both of them and get something used. Another is to sell the truck and do the work the car needs. Since I have to haul water, I need something that can pull 2,000 pounds. What I do NOT want to do is deal with ridiculous payments on something that smells good due to an excess of chemicals, and will not be near as ‘loyal’ as that truck! Letting our egos guide our purchases is not bright and we are supposed to be very bright people
Sounds like you have a couple of good options!
Done long ago! Sure does make a difference!!!
You are spot on Randy!
1999 Honda Accord, standard (!), 225.000 miles..nuff said!
Yes! Hard to beat that!
So glad you shared just how liberating it is being ‘debt-free’ . I don’t think we fully realize just how much we are owned by our ‘stuff’ until we are not.
As a budget coach, I absolutely LOVE this post and will be linking to it. Our car, bought used, is 13 years old and has 99,000 miles on it. Those Accords are tough! We haven’t had a car payment in years.
Also, hubby and I have shared ONE car since 2007. It can be stressful, for sure, to coordinate who needs it most on any particular day, but we also have bicycles and know how to use them. Every time I’m tempted to whine that we need a second car, I remember how it feels to be FREE of a car payment.
Love this post and all the comments. (But I’m glad I wasn’t riding with you they day the wheel took leave. )
A budget coach!? Where were you ten years ago!? Thanks for your comments. I am honored to think you might link to this post.
Great idea as long as a person takes that money and saves it. Most people would purchase other items instead of saving.
I have another thought. We travel a lot of miles with children, where does safety and security come in to play? Just a thought.
Yes. Those are important considerations. I think with careful planning you can get a used car that will safely transport a family!