Goodbye Cruel Debt

The greatest way to accumulate long term wealth is to get out of debt and stay out of debt. This mantra should be tattooed on your knuckles, so that every time you reach for that credit card you are reminded of the cruel economic reality of incurring debt.

The most tempting time to go into debt is when the time comes for a new car. Maybe old Bessie broke down and the repair is greater than the value of the car. Maybe you should have pulled the parking brake before leaving your car unattended on that steep hill. Or maybe, you’re just ready for a sleek new car.

Whatever the motivation, one simple concept is key: you shall not go into debt for a vehicle. You may be in 3 different situations, all which can succeed without debt.

1)      You are flat broke

This is ok. Take the bus, walk, ride a bike or carpool. If you don’t have money to buy a car, YOU DON’T HAVE MONEY TO BUY A CAR. End of issue. Start saving $200/month, and in 4 months you can buy a beater and stop taking the bus to work.

2)      You have savings, but not enough to buy the car you want.

This is ok. Take the money you have and buy an ugly car that starts every time you turn the key. Take the monthly payment you would have had – say $350 per month – and invest that into a moneymarket account or short term bond fund. When it reaches the desired level, take it out and buy a car with cash.

3)      You have enough money to buy a car with cash

Awesome! Write a check and be done! No zero down payments, no 12 months no payments. Buy the car, and start saving for your next car 5-10 years down the road. Congrats!

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