I grew up in a home where car payments didn't exist. My parents constantly modeled saving up and paying cash for cars. In fact, it wasn't until after I left home I learned how popular car payments are! Who knew?
A few years into married life, we were barley making it by on a low ministry income. My husband and I bought our first car with debt. At the time, we didn't have any cash and I honestly thought that was the ONLY way for us to purchase a car. I remember thinking at that time, only people with A LOT of money can save up and buy a car.
Years of low and inconsistent ministry income took a toll on our family. Brad and I knew something had to change. So we got crazy and decided NO MORE DEBT. We took extra work, made a commitment to live WELL under our income, and be a cash only family.
Along the way, I learned we can be a family who pays cash for cars. I no longer think you need to be millionaire to do it. Here are our best tips for getting rid of your car payment FOREVER.
The HALF RULE
When it comes to purchasing cars for your family, we follow this very simple rule.
The total value of your cars should be no more than HALF your annual income.
For example, if you are a two car family with an annual income of $50,000/ year, the total value of your cars should be no more than $25,000. You don't have to spend half your annual income on cars, but use that number as the TOP amount you are allowed to spend.
In our family, the total value of our two cars is well under half our annual income. We drive nice, reliable, paid for, used cars. We have chosen not to save up that much cash to purchase a car. We used that money on other things and we both agreed to spending our money this way. Figure out what works for YOUR family and do that.
PAY IT OFF
Total up all the debt you have on your cars. If you have a payment on all your cars, pick the smallest one first and begin paying it down. Sometimes, it is easier (and quicker) to just sell a car with a large payment.
If the car you have debt on is worth MORE than you owe, consider selling it and paying cash for a car with the difference. If you are upside down in your car, consider paying it off as fast as you can or selling it and getting a small bank loan to cover the difference.
No matter how big your car debt is, make a pledge to pay it all off as fast as you can. We paid off all of our consumer debt in 18 months. You can read about how we did that here. It was hard work to pay off that much debt in such a short period of time, but we were motivated. It changed our life. Set a goal and work hard! You can do it!!
SET UP A CAR SAVINGS ACCOUNT
Once you have figured out how much money to spend on your cars and have paid off all your car debt, set up a separate savings account JUST FOR YOUR CAR FUND. Don't allow any other money to go in or out of that account unless it is to purchase a car.
Once you are ready to purchase a car, you know exactly how much to spend! Whatever is in your car account, is what you can buy. It is a simple and peaceful way to buy a car. Has anyone EVER said that about car buying?!!?!?
Set a goal each year to stash away the cash you need toward your next car purchase. Maybe you will put aside a few hundred dollars each month into your car savings account. Maybe you get a bonus each year that can be tagged for your next car. It doesn't matter HOW you do it, just a set a goal for the year and start saving.
For example, we know that in the next 18 months or so we'd like to purchase another car for Brad. We have already narrowed down 2 options of what we are going to buy. We've done a little on-line shopping and know about what we need to spend.
We may hit our cash goal in 18 months or we may not. We know that life is sometimes unpredictable. Unexpected bills come in that need our attention. We may get off track, but we don't allow that to detour us anymore. We pick ourselves up, set a BIG goal, and start saving.
Ditching a car payment for good takes hard work, discipline, and focus. If your income is low, it may take a few extra jobs and more time. Don't give up! The hard work is worth it!
What is the biggest obstacle you face in getting rid of car payments?
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