Linda (my wife) was out with one of her friends this weekend and they were discussing cars and what kind each of them are interested in getting. The conversation progressed and Linda’s friend asked, “do you mind if I ask you how much your car payments are each month?”
Of course Linda replied $0, because they are all paid off. To that her friend was completely shocked and asked, “how do you pay off a car!?!” She was completely floored and truly didn’t think that anyone had a paid-off car – except the super-rich.
I have to admit that when Linda told me the story, I was almost as surprised by it as her friend was that our cars were paid off. I live and breath this stuff and as I have immersed myself in it that last five or so years it has become like second nature to me. This was a good reminder for me about how I used to think about money. I used to assume that a car payment was a fact of life and that it was pretty much unavoidable, so I understand where she is coming from. But having done it both ways, I must say driving paid off cars is a lot more fun!
So anyway, I figure I better answer the question – just in case her friend stops by to find out how we did it.
- Don’t pay too much for your car – I have done this in the past and it made it much more difficult to pay that car off.
- I always suggest checking out ConsumerReports.org before making a car purchase. It costs about $5 for a month subscription and will steer you away from buying junk cars and will point you to the best ones.
- In most cases the best financial decision is to buy a used car about 2-3 years old. (Read more about saving money on car depreciation.)
- Never pay the minimum payment. Our last car loan we had we were paying double or triple payments each month. This would have been impossible for us had we not set up a budget.
- By shopping around for car insurance, we saved over $500 per year – which then could be applied to paying down our car loans.
- Say NO to your temptation to keep up with the Joneses by getting a new car every other year! Realizing how rich you really are helps!
The goal should be to find a car you like that you can drive for a long time! Then when you do reach that wonderful moment when the car is paid off, you can celebrate! And then start using the few hundred dollars you were using for the car loan and start putting it in a savings account. While you are driving the paid off car for a couple years, you will have money in the savings account to cover the maintenance and repairs, meanwhile you are saving to buy the next car with cash! And then you move on to the paid off mortgage!