CCC023: Getting Out Of The Car Payment Business

Steve Stewart

The largest purchase most people make is their house. The second is their cars.

Dealers know that, but they won’t share it with you. However, they will show you how they can “get you into this car for the low monthly payment of fill-in-the-blank.”

Monthly payments are the biggest distractions salesmen use against us – and we eat it up!

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The future wealth of middle and lower income America is sapped by the “you gotta have a car payment” mentality, but it’s not too late to change.

It’s time to get out of the car payment business.

First: Identify how much car is too much

Use this formula to decide if you have too much car: Compare how much you spend on gas to your monthly car payment.

If you are spending more on your monthly car payment than on gasoline, you have too much car.

Stop reading this and go look at your car right now. Where is it? It is likely to be parked in a garage, driveway, parking lot or on the street.

You are paying a premium for parking and should seriously consider selling the car or paying off the debt. Period.

Keep the car using the “2x Rule”

If you are so completely enthralled with your car that you can’t bear to part with it then swear to abide by the “2x Rule”:

• Raise your right hand in the air
• Place your left hand on a stack of Bibles
• Swear to keep the car for twice as long as it takes to pay off the loan

Yep. If you signed up for a 5 year ride with Ford Financial then you need to keep that car/SUV/truck for 10 years – no excuses!

Think about that for a minute. Do you love this car enough to commit to driving it for a decade?

Maybe this will give you some motivation to pay off the loan early. It should also prevent you from rolling any negative equity into your next purchase.

Kill the debt in under 2 years

Look at your monthly budget to see how much money you can throw at the debt:

• Multiply the extra money by 24
• Multiply your normal monthly car payment by 24
• Add the two totals together and compare it to your payoff balance.

Keep the car if you can realistically pay it off in less than 2 years. If you can’t then it’s time to sell.

This goes for both new and used cars. Don’t let payments on a depreciating asset keep you in the middle class forever.

If you can’t pay cash

James Kinson encourages you to pay cash for your cars. It’s an economically sound solution for the biggest financial drain your budget. It’s also very hard to do when you are just getting started.

What to do With an Underwater Car Loan:

What can you do if money is really tight and you can’t pay cash? Use the same 2x Rule for every car you buy on payments:

• Buy a used car and pay off the loan as quickly as possible
• Once the debt is gone, save for your next downpayment
• Repeat the process until you can pay for a cash car

Purchasing quality used vehicles will keep you from paying a premium for parking. Getting rid of the debt will help you to save up for your next car. Continuing to purchase wisely while saving downpayment will get you to your destination – you’ll become a Cash Car Convert!


Steve Stewart MoneyPlan SOS:

Twitter: @MoneyPlanSOS

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