Kevin Trudeau, Dave Ramsey, Suze Orman – they all want you to get out of debt. That’s why they write books like Debt Cures and The Total Money Makeover. Sure, they make money selling books, but they also would like to see those books help you so that they can sell more books later. If their books were worthless, people would stop buying them. They try to provide you useful information that can help you solve your debt and money problems.
Millions of people are in debt up to their eyeballs and they want a way out. Many of the times, people want a fast and easy way out. Why else would a book with a title of “Debt Cures” be so appealing – you can cure your debt problems overnight. It just doesn’t work that way most of the time.
So how do you get out of debt? Everyone knows the answers – spend less than you earn, make more money, stop using credit cards, live below your means, if you cannot afford to pay cash for something, don’t buy it. The list goes on and on.
In the future, I’ll post some more tips from Ramsey’s and Trudeau’s books but with this post I wanted to talk to you about your car. I used to work at an insurance company a couple years ago. I worked there for about 4 years. Everyday, I would talk to people who wanted to add a new car to their auto policy and take off the old one.
I would be amazed at people who would call in and ask why their insurance rates went up when they just added a brand new 2008 Honda and took off the 1997 Honda. “It has all these new safety features,” they would tell me. And my reply would be, “well yeah!, but those new safety features cost more to fix if you’re in an accident!”
And then after we finished making the changes they would go talk to the bank about the financing for their brand new automobile. A few months later, the customer would call in saying they were having trouble making their payments and wanted to see if we could help them out. Some times we could and some times it was too late.
What’s the point of all this Adam?
The point is that if you always have a car payment to make because you want a nice shiny new car every few years, you’re not going to have much extra money left over at the end of the money to pay your bills or save for retirement. If you’re always shelling out $300, $400, or $500 a month or more each month for a car payment plus another $50-$200+ a month for insurance, you’re going to have a hard time getting out of debt.
How much faster would your debt go down if you could add an extra $700 a month to your credit card payments? In one year, that would be an extra $8,400 you could apply to your credit card debt. How long would it take you to get out of debt?
So what’s the answer?
Don’t buy a new car. There’s tons of certified used cars out there that will work just as well as the nice smelling new ones. It requires sacrifice to get out of debt. You have to be willing to change your habits to pay off your debt. Wait an extra year or two before you rush out and buy the latest and greatest offering from Toyota or Chevy. See what it’s like to not have a car payment for a year or two. See how much more money you’ll have each month when you don’t have to pay so much each month for your nice smelling car.
I have never had a car payment. I have never had a new car. All the cars I’ve bought, I’ve paid cash. Yes, that means I drive a 1994 Toyota Camry.
But then I don’t have to complain about making my big car payments each month along with the high insurance rates.
In the Millionaire Next Door, Dr. Stanley talks about this very same idea. Most millionaires don’t go out and buy new cars every few years. There are some that do but the majority are frugal and do not. Warren Buffet, one of the richest men in the world, still drives an 2001 Lincoln Town Car with the license plate of “Thrifty” on it.
Dave Ramsey also mentions it in The Total Money Makeover.
Think about it. Do you want to get out of debt or do you want a new car with a new car payment?
Have a great day!