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Escape the Auto Debt Trap With Howard Dayton

MoneyWise | Sep 21, 2022

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Show Notes

Taking the easy way out can trap us into hopeless debt, especially when it involves car loans. We’ll talk about the auto debt trap today with Howard Dayton today on Money Wise. “Difficult situations and wrong choices conspire to trap us in hopelessness.”— Judah Smith

Howard Dayton is the founder of Compass— Finances God’s Way and the former host of this program.

  • In Howard’s book Free and Clear: God’s Roadmap To Debt-Free Living, he has a great chapter called “The Auto Debt Trap.” Most people have to finance their car purchases and find themselves trapped.
  • THE AUTO DEBT TRAP
  • After home mortgages, car loans are the largest debts most people carry. And most people have ‘em. There's a joke that the only reason banks have drive-in windows is so cars can see their owners.
  • Many auto sellers discourage paying by cash because they’ll lose income if you don’t borrow for it through their finance companies. So beware.
  • Dayton says debt is one of the biggest roadblocks for most people on their journey to true financial freedom. It’s especially dangerous because most people never get out of it. Just when they get to the point of paying off a car, they trade it in and purchase that newer one with credit.
  • WHY WE GET ENSNARED IN THE AUTO DEBT TRAP
  • First, car prices always seem to rise faster than inflation, especially these days. New and used car prices are through the roof.
  • Second, advertisers have done a masterful job of marketing an expensive image rather than selling a car as affordable, reliable transportation. Their ads promise status and a carefree life … until the first payment is due, of course.
  • Finally, the cost of financing has risen significantly. Car loans have longer terms and average monthly payments are now more than $700, making it difficult to get out of the auto debt trap once you’re in.
  • HOW TO AVOID OR GET OUT OF THE AUTO DEBT TRAP
  • First, decide to keep your car at least three years LONGER than your car loan.
  • Second, pay off your car loan as soon as you can.
  • Third, after your last payment, keep making the payment, but pay it to yourself. Put those “payments to yourself” into an account that you'll use to buy your next car.
  • And fourth, buy your next car with cash. The saved cash plus the trade-in value should be enough to buy a car without credit. It may not be a new car, but you should be able to buy a low-mileage used car without any debt.
  • Then, keep making the payments to yourself so you’ll never have to borrow for a car again.
  • Learn more about Compass - Finances God’s Way at www.compass1.org.

On this program, Rob also answers listener questions:

  • How should you allocate your investments in terms of stocks vs bonds?
  • When should you loan money to a friend or family member?

RESOURCES MENTIONED:

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