Mar 1, 2014

Guide to Getting Rid of Car Payments Forever!

From time to time, I hear friends and clients complain about bone-crunching car payments.  I'm talking multiple-$500+dollar-payments-that-suck-the-life-right-out-of-you payments.  I notice the grimace in their face as they talk about how it's tough to "keep up" and just wish they could go away for good.

But what if I told you they could?  What if instead taking out a loan ever time you need to buy a car, we put into action a proven plan used by millions of successful Americans to avoid car payments all together?

It goes a little like this.  Depending on where you are in this merry-go-round, skip ahead as needed.

A few simple ground rules first:

1. Never lease a car.  Ever.
2. Sacrifice now so that you can drive a nice, payment-free car later.
3. Don't be lazy.  I know you want a nice car now, but you're going to need to wait for it.

Now that the fundamentals are out of the way, let's assume you just moved to a new town with very little money in your bank account.   You've been offered a job, but you'll need a way to get to and from work, so you begin your search for a vehicle.

I'm going to assume that most of you know not to purchase a NEW car, but to be clear... do NOT buy a new car.  Ever.

There, I said it.

A new car loses approximately 40% of it's value in the 1st four years.  Why not let someone else take that hit?

But if our assumption above that you have little money in your bank account is true, we're going to need to start at the very beginning.  Yes, we're going to buy a "beater" car.

In America, the average car payment is approximately $400.  Because you have little money in your bank account, however, I'm going to assume you can only afford a car payment of $250.  What we're going to do now will be quite contrary to general wisdom, but is probably the most important step in this "payment free" program.

Take the $250 payment and "pay yourself" by setting up a separate checking or savings account at your local bank and creating an "automatic transfer" of $250/month for 4 months until you have $1000.

Now go buy a $1000 used Car.

I know, a $1000 car is a PIECE OF CRAP.  But don't worry, you won't be driving it very long.  Let's say you drive this car for one year, during which time you pay a total of $1000 in car repairs to keep the thing running.  During the year, you also continue saving $250 a month.  After 12 months, you would be left with $3000 saved minus $1000 in repairs plus a car valued at $800.  Go ahead and sell your "crap car," and you are left with $2800.  Not bad for one year!

So now you check around and find a clunker for $2800, slightly better than your first car.  While continuing to save your $250/month, you manage to drive this car for an additional year with total repairs costing $800, and a sale price on the car after 12 months of a healthy $2300.

The result: $3000 saved, $800 spent on car repairs, and a $2300 sale price, or $3000 - $800 + $2300 = $4500.

Pretty sweet right?

Ok, since we now have $4,500 we can afford to "step it up" a bit and buy a nicer car that we'll drive for two years now.  After two years, you're left with $6000 saved up, $1400 in car repairs, and a sale price after 24 months of $3000.  You know the drill:


Ecstatic with your progress, you go out and buy a dandy little ride for $7600 and drive it for three years.  The $250/month savings over those three years will have added up to $9000, with $2000 in car repairs, and a sales price of $5000.  $9000-$2000+$5000=$12,000.

You now have the means to pay cash for a $12,000 used car.  This same car two years ago was new, you just let someone else take the hit when it was driven off the lot and you have no payments!  Excited?  You should be!  Especially knowing you achieved all this in only seven years.  Do you know how long most car loans take to get paid off?  

Normally, you would be trading in the car you bought new, rolling the balance into another loan, and buying another new car on which you make another seven year's worth of payments; or worse, be making lease payments all of that time.  But not now.  You are now driving a two year old car and have no car payment at all!  All you do now is drive that car as long as you wish while you keep saving up that $250 per month.  You are now at the point where you could, if you wanted to, go out and buy a two year old car every three years and never have a car payment! 

It's Your Choice

At this point you need to realize that this was all figured with just a $250 per month car payment.  What if you could afford $350/month, or even a $450/month?  What if you were willing to drive that 'crap car' an extra year?  Instead of taking seven years to be paying cash for two year old cars, you could do it in three or four years.  See, if you were willing to sacrifice for three to seven years, you would never have another car payment for the rest of your life and be buying cars that are only two years old.  Plus, you could be buying another car every three years.  Or, you could instead continue to buy or lease new cars, take the big hit in depreciation, have car payments the rest of your life, never be out of debt, never have financial peace-of-mind and always be broke.  Yes, people may laugh at your 'crap car' for a few years, but they won't be laughing when you never have to drive a car that's more than three years old again, and you never have another car payment.  It takes time and effort.  It takes sacrifice and determination.  It's not easy at first; but, it is most certainly worth it! 

Is it hard to discipline yourself to start buying cars this way?  Absolutely.  Is it easy to stick with it?  Nope.  It takes discipline, and a lot of sacrifice--and that's why most people will never do it the way I just taught you.  That's why most people will be broke, financially stressed and making car payments for the rest of their lives!

The method for buying cars I just showed you is how many millionaires do it.  In fact, statistics show that most millionaires buy cars that are at least two years old.  This is one of the things they've done to help them become wealthy in the first place.  Now you know.  As always, the choice is yours:  have payments and debt for the rest of your life, or use what you've learned here to take another huge step toward becoming wealthy.


  1. Our cars are paid off and it's a huge relief to not have any payments to make. Never again! =)

  2. Thankfully we don't have a car loan presently. We had to get rid of one of our cars recently, and refuse to enter into a loan. We are saving up until we can pay cash for the very reasons you've mentioned. Waiting and sacrificing are hard, but so worth it to not have a larger financial burden on my back!

  3. First time I've heard of this method but it sounds pretty great. I actually don't own a car myself. Been living car free since 2011.

  4. I've heard before about making a car payment into a savings account when your car is paid off, but this strategy here is soooo smart! I feel kinda dumb for never thinking about this way :) If I wasn't go to try living car free, then I would definitely use this method.

  5. On this system, if I'm always paying $250/month for a vehicle, what difference does it make if it's saving, leasing or a payment? I'm still paying $250/month for a car.

    1. You have the freedom to skip a payment to yourself - though I would try very hard not to do that. If you skipped a payment to your lender, that won't go over very well. If you loose your income, you don't have to come up with a payment to someone when you cannot afford it. If you have a loan you are at their mercy. Then there are the accidental late payments - and their additional fees. Also, rarely is a payment only $250 for a car now.

  6. I'm not able to get better cars right now, cause I contributed to getting both of my kid's used cars. But we are a family of 4 people with 4 used cars and NO car payments. I could not, would not, be able to handle the stress of a car payment (even one) on top of the insurance for new drivers. Reality is my kids are happy just to have transportation, they don't really care that it isn't shiny and new.

  7. Amazing - this is how people ALWAYS bought cars (and houses and everything else) until the past 20 yrs or so. Start small and work yourself up - sad that the idea is so novel to so many . I've never even heard of anything like rolling over a balance on one car to the next one and it sounds like that is common. I am still driving the Jeep I bought new in 1998. If I need to drive long distances, I rent a car usually a 10/day weekend rate on my credit card so I get reward points. I've been car payment-free for 13 yrs, spend about 500/yr average on repairs and maintenance, 16/yr taxes and 30/month insurance. I've had the transmission rebuilt among other things. Anything is cheaper than a car payment.

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