Tuesday, October 24, 2017
Avoiding Car Payments is Easier Said Than Done
By Reginald Kaigler (DEMCAD)
"Don't be a debt slave!" "Stop Being stupid!"
We've heard similar these lines from a myriad of self-help gurus. Dave Ramsey is one of the most well known financial gurus who offers people common sense advice on avoiding the dangers of debt. And in a general sense, I agree with most of his message. Dave Ramsey is absolutely right when he states that car loans are wealth destroyers.
He advocates that most people should avoid car payments, because most people get trapped into paying on a loan that never ends.
Dave Ramey advises people to buy a cheap car and save money. You can invest it or use the money that you save to buy a better car.
But what if the cheap car isn't actually as cheap as you think? What happens when the $1,000 car turns out to be a costly nightmare?
I saw a Youtube video by Rachel Cruze in which he advises her views to buy a $1,000 car to avoid car payments. In principle, this strategy seems frugal and wise. In reality, this strategy carries risks that she and Ramey rarely mention.
What if the car dies?
My greatest concern about the cheap car strategy is reliability.
How much money you're going to waste trying to keep that cheap car running? There's a reason why the car is only $1000. Is it because the car is ugly?
Or is it because it's unreliable and a piece of junk.
A simply solution would be to take it to a mechanic and have it inspected.
Unfortunately, a mechanic is not a psychic and can't predict when the fuel pump will die. That $1000 or $2,000 car may require a significant amount of repairs. It's not uncommon for cheap cars to possess a number of mechanical failures within a short time frame. And when that happens, you'll be stuck with the repair bill.
But paying the repair bill will still be cheaper than buying $450 per month for a car that you can't afford. Unfortunately, money is not the only factor. Another major factor is employment,
Good luck holding on to a job when your car keeps dying on you. If you live in an urban area or have a lot of family in your area, you will have secondary methods of getting to work. If you car doesn't start, you can use mass transportation (in the city).
However, if you live in a rural area, the situation will be more complicated. You can't simply jump on the bus when you live in the middle of the sticks. As of 2017, I have been living in rural Kentucky for over 3 years and I can tell you that it is impossible to hold on to a job without a reliable car.
The Dave Ramsey strategy is financially sound, but it feels incomplete. Here are some things that you should keep in mind if you employ this strategy.
Select a low cost used car that is known for being reliable, easy to work on and has a large market for parts. This will keep the cost of repairs at a reasonable level. Hook the car up to a reader and see if the codes have been recently cleared.
Find a private seller and take the vehicle to a mechanic. While you're at it, ask your friends if they know someone who is selling a vehicle. If you can, try to buy that old Buick from an elderly man who retired from GM. Retirees are more likely to take care of the vehicle.
Develop a Backup plan before something goes wrong. How a way to work that doesn't involve the cheap (I mean, low cost) car. Learn the bus schedules or get the Uber app. I recommend joining AAA. And get the premium member if you live in a rural location, because it offers 200 miles of towing.
If you're really interested in saving money, you may want to consider living close to your job site. You could even consider carpooling with family and/or friends.
In 2015, my piece of junk van died and I was forced to buy another vehicle. I put $1800 down on a 2004 Chevy Suburban Z71. I didn't take it to a mechanic, but I let a knowledgeable friend examine the vehicle.
After I bought the vehicle, I had a car payment of $230. But I didn't care. I pay $600 per paycheck ($1200 per month) and had the $7200 vehicle paid off in less than six months. I was able to do this, because I didn't have to pay rent. I didn't live with my parents, but I was able to avoid paying rent and utilities. I was in a very fortunate situation.
In the last two years, I have replaced a front end part, starter, front axle seal, alternator, four tires, water pump, thermostat, coolant hose, serpentine belt and front impact sensor.
I also replaced all four rotors and brakes. Some of these costs are necessary for any vehicle and others are the result of buying a vehicle with over 230,000 miles.
I prefer to avoid debt, but sometimes our circumstances limit our options.
Simply put, you have to assess your situation, add in the variables and make the best decision that you can make.
Don't buy a new car that you can't afford, but avoid buying a used car that is unreliable. Good luck finding the happy median.