4 Steps to Never Having a Car Payment Again

Ever experience that sick feeling when your car payment is due every month?  You realize that you don’t have a much of a choice when it comes to making that payment because you need that vehicle to get to work and run the kids around town.

no car payment

My New (to me) Lexus

But you knew if you were able to have a paid for vehicle that your family’s finances would be so much easier to deal with.  What if something unexpected happened like getting laid off or an accident/ illness that keeps you out of work for several months?  Would you end up losing your vehicle because you couldn’t make the payments?  Unfortunately, many people would.

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“Car sickness is the feeling you get when the monthly payment is due”- Unknown

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So how can you find a way to eliminate that sick feeling and drive paid for cars for the rest of your life?  Well, there is a very simple concept that can allow you to do that if you’re willing to have a moderate amount discipline and stick with a long term plan.

  • The first thing to do is to keep doing what you’ve always done and continue paying that car payment until it’s completely paid off.  If you have any extra money  in your budget to save toward your next car then put it away and don’t touch it.
  • Second, resist with every ounce of energy you have the illness called “car fever” that even the best of us seem to get when we get a car paid off.  Like the flu virus, it is a natural phenomenon but it can be very seriously hurtful to your financial health.

You see, when you finally get a car paid off, that car loses some of its luster.  You decide you’re tired of driving that same old vehicle and now you have some money freed up because you no longer have a car payment.  So in your infinite wisdom your emotional side tells you that you need a new car, better yet, you DESERVE a new car.  So let’s go out and get another car payment!

Seriously, resist car fever at all costs!

  • Keep that old vehicle that’s still running fine and drive it until the wheels fall off. Put your car payment in a bank account every month instead.  Never treat your lack of a car payment like found money and buy a bunch of cool stuff because you have an extra few hundred dollars a month.

CONSISTENTLY put that money in a bank account and leave it there.

  • You drive the wheels off that old car, and once you have enough money saved up you can buy the car of your choice with the money you’ve been saving.  As a matter of fact, I just did this a couple of weeks ago.  My Jeep Grand Cherokee finally died after 13 years and 320,000 miles.  I just went out and paid cash for a nice Lexus RX300 pictured above and I don’t have to worry about paying loan interest on a depreciating asset.

Once you pay cash for your car,  you continue putting a car payment in the bank every month so you’ll be ready when the time comes for your next vehicle, and so on until you die or your kids take away the keys.

This is a truly an awesome way to begin taking control of how you spend your hard earned money when it comes to the transportation that most of us depend on.  It’s really not that difficult to do, especially when you finally decide you’ve had enough of sending your money to someone else and you change your mindset about car payments for good.

Just think, if you were to lose your job or experience some other financial crisis, think about how great it would be to have a paid for car.  When a crisis does happen, all you have to do is not pay into your car account for awhile until the financial situation picks up again (disaster averted!).

Another benefit is that owning a car actually becomes cheaper because you are no longer paying the interest on the loan for a vehicle.  So now, instead of paying close to $30,000 for a $20,000 car over five or six years, you actually pay $20,000 (or whatever you can afford) and that’s it.

Since you have cash you might even be able to negotiate a discount, depending on who you’re dealing with.  People can get very anxious to sell when they see nice pile of green in front of them.

So when you feel yourself getting “carsick” once again, think about this simple process, change your mindset, and get rid of your car payments FOREVER!

ACTION STEP:   Change your mindset about car payments and make a commitment to pay cash for your next car.

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About Dr. Jason Cabler

18 Responses to “4 Steps to Never Having a Car Payment Again”

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  1. I’m so glad to see someone else advocating having a car replacement fund. Almost every PF expert talks about having an emergency fund, but you really need two funds: one for unforeseen emergencies, and another for what is inevitable: a car is a mechanical device and it has to be replaced every now and then. And putting the car payment into the car fund (preferably automatically) is a no-brainer.

    • Solid personal finance is about being prepared. Everybody knows that they’ll need a new car eventually, but not very many people have a good plan to be able to pay for one. That’s why so many people end up financing and having to pay all that interest.

      Having a plan saves you a ton of money!

  2. Kelly says:

    My husband and I about 10 years ago set up a car payment that we pay to ourselves. We were able to pay cash for my car a few years ago, and let me tell you. Nothing feels better than that. Great post!

  3. Absolutely! It’s great not to have that pit in your stomach from sending off that payment every month, hoping your car will at least last long enough to get it paid off.

    Congrats!

  4. JMK says:

    Our very basic, normal spending consumes about 55-60% of our take home income. This excludes retirement savings, travel, and saving for future cars. In a normal week we do not replace a car or take a trip, so the excess 40-45% of our income is transferred to either our retirement accounts or we make an extra mortgage payment. Every week like clockwork. If we decide to take a trip or replace a vehicle we just stop transferring the excess for x weeks/months until we have enough accumulated. By the time we research and locate the next “new to us” vehicle the money is waiting. The following week we resumed the transfers to the retirement accounts/mortgage. It’s a non-standard way to do things but it works for us. We prefer to get the excess money moved to our invesments or pay down the mortgage asap to get the most benefit (earn more interest, pay less interest). We buy 3yr old vehicles and normally drive them for 10yrs, and have it set up that we alternate and replace one every 5yrs – never both at the same time. It didn’t seem logical to let the cash sit idle for so long when we have excess piling up in the account every week. Just one of the advantages of living waaaay below your income.

  5. Sounds like you have a good plan in place, and that’s what it’s all about. If it works for you, that’s awesome. You are way ahead of most people!

    Thanks for the comment!

  6. John says:

    We have paid for our last three vehicles with cash, and it feels great! Obviously you want the money to be fairly fluid, should a car die, but do you feel there are any investments that are low risk that may help you get a slightly better rate than just having it sit in savings?

  7. Probably a money market account is as risky as you should go. It has a better return than a typical savings account but still not much of one at all.

  8. This is such great advice! I just recommended someone start saving for their next car the other day. Confusion crossed their face..what SAVE for something you don’t need yet? Yes. It’s called a plan.

  9. It’s amazing how that just doesn’t occur to some people. They are so tuned in to having a car payment that they never even consider that you CAN and should pay cash for a car, it just takes a plan.

  10. C. Hunter says:

    This is exactly what I’ve done. After financing my first car in l970 and being appalled at the interest I had to pay back, I’ve simply put the equivalent of a car payment (keeping up with prices increases) into the bank monthly. Have paid cash for the 5 cars I’ve owned since…and have driven each car for at least 10 years, sometimes longer. I also don’t buy “top of the line” but buy a decent, reliable car each time,so the repairs don’t really kick in about 8 years down the road. It’s worked really well, and I’m glad to see this suggestion being given.

    • It’s good to see someone who’s been doing this for a long time. It proves to people that this is not just some high and mighty concept. It actually does work if you’re willing to do it, and it’s not hard to do!

      • Brad Chaffee says:

        Last year we paid cash for our 2002 Mazda MPV. $8500. As we saved and upgraded little by little this was much easier than we used to think it would be. driving reliably without a stupid car payment is more than possible — it’s the smartest thing you can do for your money. :)

        • Right on Brad. Car payments suck, nobody needs them. We just have to keep hammering away and telling people about these kinds of things and some will eventually get the message. Just using this one strategy alone can save tens of thousands of dollars over a lifetime!

      • C. Hunter says:

        .**a correction….I meant to type “buy a decent, reliable car each time, so the repairs don’t really kick in until about 8 years down the road.” In any case, this system has worked for me, and I just bought my latest brand new car in March 2012. In addition, paying cash usually means at least $1000 off the sale price. I am also usually able to negotiate a fairly decent trade-in value even after 10 years, as car dealers are eager for the cash payment.

  11. Rae Tardif says:

    If you drove the Jeep until it died what did you do with the carcass? Had it towed to a junk yard? And since I will want to upgrade before my ’99 Honda Odyssey leaves me stranded on the side of the road, what is everyone’s take on options for getting rid of a very old, very high mileage car? In the past we list it on Craigslist for $1000 and someone invariably comes along and pays us $800 for it.

    Any other viable options for getting rid of the still-running car and the dead one?

    • The Jeep is still sitting in my driveway at the moment. It still runs but needs a valve job so the cost would not justify repairing an engine with that many miles.

      I’ll probably be putting it up on Craigslist soon. There is always someone out there willing to buy an old car and fix it up.

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