Passing on a Vehicle Upgrade for Something Better

Not actually The Jeep. No known photos exist.

When I first met my husband in in 2002, he was driving a 1995 Jeep Cherokee. He purchased it used before we met, and he drove it until we retired our debt in 2010. This vehicle was a story and made an impression on anyone who rode in it. The Jeep leaked when it rained, took the length of a commute to heat up in the winter, and had only three functional doors and one radio station (MPR in case you’re wondering). At one point during our debt snowball, it was stolen out of our driveway, and we kind of laughed at imagining the thieves realizing what a dump they had taken when the cops caught them on their “high speed” chase. When we retired our debt and were ready for a new vehicle, we gave the Jeep to a friend who was down a vehicle after fully disclosing its issues. It lived on another couple months for this family, providing a rocky mode of transportation until they could find another vehicle; the Jeep was finally junked.

Imagine my surprise when my husband began shopping for a replacement vehicle and landed on ANOTHER 1995 Jeep Cherokee. This time it was a fire engine red luxury model with heated leather seats. His reasoning was that he already had the repair manual and knew how to work on the vehicle. He recognized that for the time being, not upgrading our vehicle created the space for something better.

While we didn’t carry loans on either of our four wheeled vehicles into our debt snowball, we had a loan against a 401K that was used to purchase a motorcycle. Even though it was time to replace The Jeep, we were unwilling to take out a loan and opted for a garage sale replacement vehicle. It was the first time as adults we had purchased a car with cash, and the freedom that came from foregoing a payment was awesome. We were able to recognize that skipping an upgrade in vehicle allowed us to work quickly towards fully funding our emergency fund and return to investing in our retirement.

Today, many others are making a different choice when it’s time to buy a different car. Debt associated with a vehicle purchase is at an all-time high. According to Automotive News in early June 2016, Experian released data stating that the average new vehicle loan is $30,032 with monthly payments of $503 for 68 months. Used vehicle loans sold by dealers average $18,424 with monthly payments $376 for 66 months.

The best way to approach vehicle debt is to never get into in the first place. Instead of making a car payment to a dealer, pay yourself the monthly amount, and in a few months you can buy a beater. Keep paying yourself the car payment you would have accrued with a loan, and in another few more months, sell your beater. Combine the sale amount with your savings for a slightly less beat-up beater. We have purchased three vehicles since starting our debt free journey using this strategy. While it is not as easy or quick as securing a loan, the rewards of contentment and a cushion in your budget are worth the time.

If you listen to the Dave Ramsey radio show for a couple days, you’re bound to hear Dave telling a caller to, “Sell the car.” His guideline is that while working the debt snowball, you keep your vehicles if the total value of all of motorized assets are less than half of your annual income AND you can pay off any outstanding loans in less than two years. If any item pushes you outside this parameter, Dave advises to downgrade transportation, and sell the vehicles tied with the loans. If you owe more than the vehicle is worth, look into finding a bank that will lend you the difference and add that amount to your debt snowball. We didn’t need to take this step when retiring our debts, but a number of Financial Peace University Alum have shared doing this, and I am always impressed with their courage to own their past mistakes and work towards a solution.

My husband drove the second ’95 Jeep until it was 20 years old, and then sold it to a kid who had just got his license. He upgraded to an economic 2002 Honda Civic that has proven to be reliable and gets good gas mileage. I’m driving an ’05 Dodge Caravan with 160,000 miles. We continue to save monthly towards vehicle repair and replacement because these gems won’t last forever. The decision to forgo a substantial vehicle upgrade in favor of living below our means provides the space in our budget and lives to pursue other goals. We don’t want to surrender that vision to a car payment.