Opening Eyes, Escaping Traps
I'm going to start today's post with a correction. In yesterday's piece, I shared the story of a young couple who wanted to buy a car without debt. I explained how they planned to buy a $20,000 car by saving $500/month for 20 months. Blog reader Ryan pointed out an error, as $500 x 20 = only $10,000. That was a fat finger on my part. This couple planned to save $1,000/month for 20 months. It required them to significantly pare back their budget and sacrifice, but they did it and paid cash! **I’ve since corrected this error on the website.
On the heels of yesterday's post, I received some expected pushback. Specifically, I was accused of exaggerating the monthly car payment this couple would need if they decided to buy a new car. The exact words were, "A $580 car payment seems over the top. That doesn't even seem like a realistic number. Car payments aren't that high."
One of my favorite aspects of my podcasting and blogging is the opportunity to share a broader perspective with people. Understandably, most people's context regarding many of these topics is singular: theirs. They know their life, and it's hard to see things through the lens of other people's situations. That's why some people think our economy is fantastic, and others believe it's trash. We don't know what we don't know. We see the world through our one-of-one reality.
I'm grateful that in my work, I get to walk alongside hundreds of people and try to put myself in their shoes. With that preface in mind, back to the car payment. Some see a $580 car payment and think that sounds outrageous. I see a $580 car payment and now think to myself, "Oh, theirs isn't so bad." I remember when I saw my first $1,000 car payment. It was startling. Now, I expect it. Further, I now regularly see $1,500 car payments. It's bonkers!
I often get accused of beating this car topic into the ground......guilty as charged! I believe cars are the single biggestcontributor to our modern-day financial struggles. Our cars are literally killing our finances. Here are a few stats to show where we're at (second quarter 2024 data):
The average new car loan is now $41,000
The average new car loan term is 68 months (more than 5.5 years)
The average new car loan interest rate is 6.8%
The average new car loan payment is $734/month!!!!
The average new car insurance payment is $194/month!!
That means, on average, the monthly cost for a new vehicle in America is $928/month.
It's an epidemic, but it gets worse. Since cars depreciate in value by about 15% per year, and we're extending the loan terms out longer and longer, nearly 1/4 of vehicle trade-ins have negative equity (meaning people owed more on the car than it was worth). This causes people to perpetually borrow more than their newly purchased car even costs.
This trap is killing millions of families! At least 25% of people reading this are probably experiencing high monthly car payments. The opportunity cost of those payments is tremendous, and I have enormous empathy for everyone in that situation.
But we don't have to play these games! It's 100% possible to escape the car loan debt cycle. It takes sacrifice, humility, persistence, and dedication. But you can absolutely do it!
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