28 Jan
2010

Car loans can really suck up a lot of your paycheck. Even if you get a great interest rate and a super deal from your dealership, you can still easily spend $400 or more for a new car on car loan payments alone – and that’s before the cost of repairs and insurance. That’s $400 a month you could be putting in investments, savings, or an emergency fund. You can avoid car loans entirely with this simple plan:

1) Save up cash for a much older car. Even if you buy a car that isn’t that great for about $1000 and put aside $2000 for repairs (which it will inevitably need) you will still often get a car that lasts about a year. During this first year, save about $200 a month into a savings account.

2) Once your $1000 car dies, take the $2000+ you saved over a year (or more) and invest it in a slightly better car. Sell your current car (for parts if you have to) and put the cash in your emergency fund for any repairs you might need on your vehicle. Continue to save $200 a month for a year or two while you drive your slightly better car.

3) Repeat the process, saving up more cash and upgrading your car with each sale. Each time, you’ll be able to pay cash for a car and have money left for any needed repairs. The $200 you save on a new car payment should go towards paying down your personal loans, student loans, or other debts.