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How to NEVER have a car payment again- Part 2

Updated on August 4, 2014

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If you have read Part 1(found here), and are now reading this, you are interested in learning more about eliminating your car payment, and creating a system to provide enough money to purchase a car every 5-7 years.

To start the process, we need to assess your current car situation. If you have a car, you are most likely either leasing it, you own it, but are making monthly payments on it or you own the vehicle outright. If you own your car outright, you can skip the rest of this section as you are already on to the next step. If you lease your car, we need to get out of that lease. If you can break it early, and have some money saved up to purchase a car for cash, do it as soon as possible. If you currently lease a car, work towards terminating the lease, and saving money. If you are unable to break your lease, ride it out and again, save as much money as you can.

Most people fall under the category of owning a car, yet are making monthly payments. In order to get this method working, we need to first eliminate this car payment.

We need to eliminate your car payment, plain and simple. There are a number of ways to do that:

- Pay off your car- This is the easiest way to continue on in the process of never, ever having a car payment again. If you only owe a few grand left on your car, see if you can scrape up the cash to pay it off for good. If you are unable to make one large lump sum payment, try making it a goal to have your car paid off in a few months. Keep in mind saving money in a savings account and paying off debt is essentially the same thing; the total on your balance sheet is the same. If you are able to do this, do it! Then skip to the next article in this series.

- Trade your car in- Not the most bang for your buck, but if you can trade your car in and buy a car outright in the same transaction from a dealership, it makes this process a lot easier. If you have $8,000 on your loan, and your car is worth $10,000 on trade, you can purchase a $2,000 car outright, or maybe one slightly higher if you have some extra cash lying around. Again, you will not get as much from a dealer for your car as you would selling it yourself, but the transaction may be easier and faster than privately selling your car and having to find a different car to buy later. If this method is feasible, go for it. The sooner you stop making monthly car payments, the better.

- Lastly, and the most likely and most lucrative scenario, is to sell your car yourself. This can cause some logistic issues as you may be without a car for a bit while you find your next one. But this method should allow you to get top dollar for your car if done right and if you stay patient. If you are able to sell your car, be sure to get enough for it to at the very least pay off your loan, and ideally with enough left over to buy your first car completely owned outright.

By this point, no matter your scenario, you should no longer have a car payment. Your car should be sold, or paid in full! Let that sink in a bit.

But let me back up and offer some advice on what type of car you should buy as your first, full owned, no payment car. If you paid for your car in full, that is great, and I recommend driving it as long as you can, as it will help you in the long run with this process.

- I recommend not spending more than about $3,000 for your car.

- Make sure the tire tread will at least get you through a full year.

- Find one that runs without needing any initial, additional work.

- Remember, the older the car, generally the lower insurance, tabs and taxes.

- Find a four door sedan. Don’t buy a truck or sports car.

- The goal of this car should be to last just about one year, so it does not need to be anything special.

- Once purchased, try to put as little money into it as possible. Yes get the oil changed, rotate the tires and do scheduled maintenance, but remember this car’s purpose is to save you money so don’t sink more into it than you absolutely have to.

OK. You own a car outright, one way or another you no longer have a car payment. You are no longer paying interest on a loan for a depreciating asset. Let me give you a taste of where I was at to this point.

My story

I had a midsized SUV that I purchased for $10,000(2005 Saturn Vue). It was used, low miles, great on gas for an SUV. I owed about $7,600 on the loan when I decided to sell it. I was able to sell the vehicle to a private buyer for $8,500, I think it blue booked for around $9,000. One of the best phrases I can tell you to use to get what you absolutely need for a car is to say, “ I’m sorry, I need to get at least $X,XXX for my vehicle, as that is how much I still owe on the loan”. That phrase shows you simply cannot go any lower, and takes all the pressure off negotiating. Use it!

Once I sold my vehicle, I was able to find a 1996 Acura TL (I bought it in 2010) for $3,000. It ran, had high miles, OK on gas and needed no work. For the first time since being out on my own, I was without a car payment, and my goal was to never go back. I didn’t care about the high miles, or condition of the car as I knew I would only be driving it for about a year. It also gave me the motivation to continue on with the process.

So to recap, you need to eliminate your car payment for this process to work, however that may happen for you, make it happen as soon as possible. If it means simply paying off your loan, do it! If it means selling your car and buying an old, cheap car, do it! Remember it’s not permanent; it’s simply a stepping stone to a lifelong process of never having a car payment again.

The next article will focus on how to get to your second car, and getting the wheels turning in our final goal of being able to buy a care outright every 5-7 years with no out of pocket cash!


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