No more car payment… EVER!

In my last post I talked about developing a strategy for fighting off my debt – I said I would pay off my credit cards, then my car loan, then my student loans and finally, my mortgage.  I got my credit card loans paid off pretty quickly, it only took a few months.  I applied my promises and paid an extra $1,500 to my credit card payments until they were gone.  And as of yesterday…. wait for it, wait for it…  My car loan is PAID OFF!

I applied the same principles – make sure I have the extra $1,500 each month before doing anything else and applying it to my “targeted debt.”  If you remember, I started with a car loan of about $15,000 (right under, actually) and a car payment of $356 each month.  But I also added the $1,500 to that payment and mailed a check of $1,856 each month for 9 months.  Earlier this week I mailed my last check of $1,604.52 for the payoff and it was credited yesterday!

So many of you are probably thinking “okay, great.  He paid off his car and won’t have to worry about payments again for 4-7 years when he buys a new one.”  WRONG!  I am now going to change my saving habits a little, let me explain.

The average person pays about 8% interest on a 5 year auto loan.  If you were to purchase a brand new, very reliable, nice car for $20,000 and make only the required payments – you would pay about $4,350 over the life of the loan, or $72.50 each month.  And the average person has an auto loan for their entire life.  So what am I doing differently?  I am making my auto loan payments to myself, interest free.  I am now going to save an extra $300 every month for a car fund (My $356 car loan payment minus interest rounded to $56).  If I continue to do this over the next 5 years I will have $18,000 saved, not including any interest I make on the money.  Assuming I can trade my car in for $8,000 (which is the average trade in price of the same car I have but 7 years old now), I will have $26,000 to spend.  If I continue to rinse and repeat this for the rest of my life I will have saved enough interest to buy my car in cash TWICE!  Think about that for a second…  $75 a month saved, forever!

After all that I can now add the $56/month I am saving on interest into my student loan payments, for an extra $1,556 paid each month.

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5 Responses to No more car payment… EVER!

  1. Good for you. I have not had a car payment since 1989. Along the way I purchased cars with the money I had. The last car I bought was a brand new Nissan Altima. Again I purchased it with the cash I had saved. When I purchased the car a few years ago, I also purchased the 7 year extended warranty. “The car works for me, I don’t work to have a car.”
    The minute you drive off the lot with your brand new car, it’s used. The key is to take care of your car and it will take care of you. It is the same with everything, even your body.
    Best of luck in the future.

  2. monaarts says:

    Thanks Richard. I hope to say the same thing in years to come… My wife and I intentionally purchased cars a few years apart from one another (her’s doesn’t have a loan) so that we can alternate purchasing new ones.

    I’m not opposed to buying brand new cars (both of our current cars were brand new) and I know you lose some $ as soon as you sign the paperwork, as long as you got an amazing deal on it. My 2012 Honda Accord EX-L was purchased brand new for $21,500, which included taxes, title, etc. This was a savings of more than $10,000 off sticker price ($29,500 plus taxes, title, etc.) I looked at used Honda Accord EX-L’s from 2011 that were more expensive than this.

    • Hi
      Saving money and paying off bills is also a factor of income. More income less worrying about bills. I sure you know that. Also less bills more disposable income. Check out my blog http://21stcenturymoneysolutions.wordpress.com/. This will help with income and less bills.

      • monaarts says:

        Agreed… But with that said the phrase “living within your means” comes to mind. When I looked to buy my house I was approved for a mortgage over twice the price I was looking to spend. I don’t want to be house broke, I want to be able to afford my house while saving money and paying off all my other debts – like my car. I know people who make less than my wife and I do and are living ‘more luxurious’ lives than we are. Sounds great right now, but in 10 years when I can afford to go on a last minute vacation that costs $3k-5k while they are stuck at home trying to figure out how to pay their bills, I think my arrangement sounds better.

      • Yep. It all depends what your looking for and your philosophy in life. Some people want that jolt of satisfaction when they purchase an expensive item. But later sink back to reality when the bills come in. Funny you mention houses I just posted a blog on homes. We are the result of our decisions. Better decisions better life. Good Luck.

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