Debt is a prison. There is nothing prosperous about buying things on borrowed money. Doing so can destroy your current and future prosperity. It’s important that you break the bonds of debt.
Last post we looked at getting rid of credit card debt. That seemed to resonate with almost everyone. But let’s look at an area that most people rarely think of…
Your car and your home...
Everyone thinks that it’s just natural to finance these because they are “major” purchases. But just because that’s what everyone in the herd does, that doesn’t mean that’s what you should do. In fact, when everyone does something is usually a pretty good indication that you should evaluate it a little closer. Please check with an accountant or financial planner what may be the best approach for you.
Here are my thoughts on buying a car…
Of course the goal is to get to the point that you can buy even your cars cash. If you’re not there yet, here are two tips for getting there quicker.
First make a promise that you will NEVER buy a new car when you are upside down on the old one. (For those of you that don’t understand the term, this means you owe more on the car than its resale value.) This is a near-certain recipe for disaster. Car dealers will happily tack in your negative amount on top of the financing they do for your new car. They couldn’t care less about the situation that puts you in, as long as they get another sale for the month. Drive your car an extra year (or even two) till you get a more positive position.
Another great idea is to buy an “almost new” car. As you probably know, cars take a dramatic depreciation the second they are titled for the first time. Sometimes people buy a new car, then they get divorced, realize they can’t afford it, or something else happens that forces them to sell. If you buy a demo car, or one that the owner sold early, like with 3,000 of 5,000 miles, you can slash a huge percentage off the price. And you are still getting a basically new car.
Some people are afraid of this, fearing the car was a “lemon” that someone got rid of. I don’t think that is really a problem today, as most cars, even pre-owned, are coming with long warranties. (And there are services like CarFax that allow you to see any service or accident history of used cars.)
Also, you will get more for your old car if you list it and sell privately instead of trading it in at the dealer. Even if you sell your old car and have to rent one for a week before you find your new one, the extra money you pocket usually more than compensates.
This week, set a realistic, non-emotional and very strict budget for what you are going to spend this coming holiday season. Buy early and plan ahead. Don’t let last-minute emotion take you over what is prudent.
One last thought. I saw a commercial on TV the other day for a furniture store. They are selling new living and dining room suites with no payments until 2014. That’s a good test of your prosperity consciousness. If you hear something like that and think it's a great idea, your consciousness needs work! If you hear something like that and think it would be downright foolish to take them up on their offer – you’re on the right track.
Please share any other tips you have for getting debt free. And next post we’ll look at homes and mortgages.