You’ve probably heard how giving not only benefits the recipients but the giver. However, what do you do when you’re in debt? Learn how you can pay off debt and give more to the causes that matter most to you! Giving While in Debt? When people ask this, two things jump out at me. First, […]
One big expense that many couples have in their budget is their cars. Besides maintenance, gasoline, and insurance, there are plenty of families dealing with a car loan or two.
While having reliable transportation is a necessity, going into debt for it doesn’t have to happen.
In this episode I’ll go into:
- how I got into a car loan and what should’ve been clues that it wasn’t within my budget
- our plan to become debt free and how we paid it off early
- creating a system to buy our cars with cash
While not everything may apply to your situation, I hope our story can encourage you to get out of debt and into the habit of saving for big purchases.
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My husband and I agreed that having this car payment was not in our best interest and we worked head to pay off the car loan early.
The first step in paying off the car loan is finding money in your budget. If you’re living paycheck to paycheck this may impossible. For us, we began to optimize our monthly expenses. Some of our strategies included:
- Examined our budget line by line. We looked at what was necessary and what was important to us and we’ve kept that in. everything else was reduced or eliminated.
- Shopped around for the best deals. We looked at what companies could take care of our needs at the best price. We compared cell phone companies, cable options, and even car insurance to trim our expenses. (this actually produced the bulk of our extra payments as we were able to save about half on car insurance)
- We had cheap fun. We looked for happy hour deals around town and met with friends then. We had potlucks which meant stepping up our cooking skills a bit.
- Snowflaked payments. Our tax refunds and stimulus check went to lower the principal.
With this joint effort we shaved a few years off the loan.
If you’re curious about the specifics, please check out this detailed post on how we paid off the car loan early.
Buying a Car with Cash
With the car loan paid off we had some extra money in our pockets – it felt great. However we also knew that even if we did our best with maintaining our cars, they wouldn’t last forever.
We needed to get started on our car fund.
Building Up a Car Fund
If you two are saving up for your next vehicle, you should begin by honestly evaluating your current car’s condition. According to Consumer Reports, well maintained cars last on average 200,000 miles.
I know that some may hate the idea of driving a car that long or owning an older vehicle, but please keep in mind that cars depreciate around 60%-70% in the first 5 years. The longer you can go without car loans, the bigger the fund for when the time comes to shop for your next car.
If you’re looking for general guidelines, here are my recommendations:
- Current Car is between 1-3 years old- Wait 5-6 years for your next car
- Current Car is between 4-6 years old – Wait 3-5 years for your next car
- Current Car is between 7-9 years old – Wait at least 2 years for your next car
(Please take these with a grain of salt – I just want you to have some time-frame in mind when you’re saving. Adjust these numbers based on how well your car is doing now.)
Automate Your Car Fund Contributions
Believe it or not, if you want to get free from a cycle of car payments, you need to make some more. The good news is that these car payments are much more manageable and earn you money, instead of draining you.
Stash it away in a high interest savings account. We love using Capital One 360 and Ally Bank as they have pretty competitive rates.
Not sure how much to sock away? Start small and automate half of your previous monthly car loan payments. Your family’s monthly cash flow will have some more breathing room and you’ll be able to reallocate the rest as you see fit.
As you get closer to your goal, start looking around your area to see what cars are best suited for your family and budget.
Consumer Reports is a fantastic resource to help you find something reliable. Edmunds offers a True Cost to Own list that they update regularly.
If you decide to go with a private seller, make sure you have a trusted mechanic go over the car to make sure all the major components are in good shape.
Thoughts on Cars
I hope these tips help you two find the car you want and keep you out of getting a car loan. Please share any other tips you have on either paying off car loans or buying cars with cash in the comments below!
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