Debt Free Cars

It’s no secret that I hate debt. But I can at least hesitantly accept debt that is associated with an investment like an education, business, or home – especially if you are aggressively paying it down. It’s the consumer debt, that does nothing but enable people to consume products, that is especially terrifying. Credit cards, furniture financing, and the all too common CAR DEBT.

With car advertising always in our face, it’s no surprise that many people fall victim to constant upgrade cycle of vehicles. And depending on who you associate yourself with, you might commonly hear the mantra of the middle class, “You’ll always have car payments!”

But these car payments come with a nasty two-punch reality:

1. You are paying interest on a depreciating asset. Which means you are paying to borrow money on something that is actively going down in value. This is not good for building financial wealth.
2. You pay more with debt. It’s a known reality that making purchases with debt financing means you are likely to spend more than if you were paying with cash.

Thankfully you have control over the purchases in your life. So you can make the active decision to live a life of debt free car driving.

We personally have two paid for Toyotas in our family. One car is a 2012 Prius, the other is a 2016 Rav4. Both cars are owned out of practicality for our jobs and our family. And while we could easily “afford”  payments on luxury or brand new vehicles, restricting ourselves to cash-only purchases means we make vehicles purchases that are in line with our financial/life goals.

5 Ways to Have Debt Free Cars

1. Be Reasonable – One of our cars is seven years old. The bluetooth sucks, the climate control has a few issues, and the cloth seats have some stains. But you know what? It works. And while I see people making less than us driving nicer cars, I know that owning a less expensive car without debt is the reasonable thing to do. Don’t try to do fancy mental gymnastics to create reasons why you need a new vehicle.
2. Create a Sinking Fund – Adding a category in your budget for vehicles is an easy way to start building towards a future cash-only purchase. Budget consistently in that category overtime to have the cash ready when a car needs replacing.
3. Earmark Windfalls – When you get bonuses, tax returns, or gifts, try throwing that money directly into the fund for car replacement. Over a few years, this can add up to a good chunk of change.
4. Purchase A Good Vehicle – Always research the car you are buying and make sure that it’s reliable and effective for your needs. Going with brands that are known for reliability will save you lots of money as your car ages.
5. Actively Drive Less – In an ideal world, we wouldn’t have to drive as much. I personally try to bike to work when possible, and plan my trips to avoid extra driving. Setup your life so that walking, biking, or taking mass transit is available for common trips.