(Photo: Mike Haslam, used with Creative Commons license)
All you have to do is stay committed to driving a less expensive car for just a little while, and continue making those regular car payments to yourself once the car is paid off.
- Pay off your car loan as fast as possible.
- Continue making those same monthly payments to yourself in a high-interest account. The video suggests you can get a 12% return if you put it in a good growth mutual fund. If you’ve been watching the news lately, you know that kind of return is just not gunna happen. But, you can get at least 3% in high-interest savings accounts, and some CDs are doing better. Rates will go back up eventually.
- After about 10 months of paying yourself your car payment (they say the average is $475/month), you’ll have $4,750 plus interest in cash. Add that amount to the value of the car you’re currently driving, and you can have a pretty decent upgrade in a short amount of time. Say your car was worth $5k. You can get into a $10k car in 10 months without taking out a car loan.
- Keep paying yourself $475 for another 10 months, and you’ll be able to move up in car once again.
- Eventually, according to the video, if your “car fund” is left alone and is able to grow at a good interest rate, you won’t have to contribute to it anymore. The interest alone will be enough to buy a new car with cash!
Whoopee! Sounds like a great deal to me.
Shane and I have a car loan right now. It’s not fun. Our payment is $277/month and if we never make an extra payment, we’ll still have the loan for a little more than three years.
How about, “No thanks to that!”
I’ve been crunching some numbers, and it looks like if we buckle down, we’ll be able to get that thing paid off by the end of 2009–and sooner if we get ultra-serious and also have a few things go our way. Like um, if my baby is born in 2008 instead of 2009, we’ll get a decent-sized tax refund this year. He can be born whenever he wants, but I’m just sayin’…
I’m really excited to live without a car payment ever again. Our car is just a 2006 model and has about 20k miles on it. It ought to last us at least another five years, and perhaps longer if we use it as a secondary vehicle.
In my left sidebar, you’ll see that our extra money is being tossed into our “baby fund” right now. I want to have some cash saved up to use to buy things before our son is born–things like the car seat, crib, etc.
On paper, it looks like we’ll have that fund completed in just a few weeks.
As soon as that happens, we’ll start attacking our car loan. I’ll update my progress bar tracker to keep me motivated. I’ll also need to call our bank to find out if I can make unlimited extra payments per month, or how to go about it. Also, I want to make sure my extra payments are going directly to the principal of the loan.
What do you think of living without a car loan? Is it possible or a bit too far-fetched?