Your car and the interest rate.

I kept my last vehicle for 16 years. Although she was still running smooth, and looked pretty decent for being an “older but paid for vehicle” I decided to trade her in. I wanted newer safety features, bluetooth and well, that new car smell! I shopped around and like Cinderella, found an SUV I liked, and it fit me and my requirements, wants and needs, “just right.”

We bought a NEW car!

That was 3.5 years ago.

Things were good, we didn’t have any credit card debt and got a low interest rate. To keep the monthly car payment “manageable” we spread the loan over 7 years. The idea was that by the time it was paid for it could go to the kiddo as her car, she would be nearing driving age by then.

See? We had a plan. To us we figured we had gone so long without a new vehicle, and had a track record of keeping our vehicles for a lot longer after they were paid for. So it was an easy way to justify the new car, a new car loan and a new car payment!


So, our loan interest rate was under 4% which was pretty much the norm about 4 years ago. Our previous vehicle’s interest rates were closer to 7% so we felt like we were doing great and making financial progress. As we were making monthly payments on the loan, the interest amount was slowly creeping down. But hey, we had this new car to show for it! YAY US!

Now, let’s fast forward to about 3 years later and I’m thinking, “I don’t want to have this car payment anymore.” We had been budgeting pretty hard for over 2 years already, and with that I was seeing the error of our ways. So at the beginning of 2019, we sat down and planned the financial year. We set a goal of paying off the car by the end of 2019, because we hated seeing the wasted money on the interest amount.

When I tallied up exactly how many dollars and cents we had wasted so far, the amount was $3402.44 and we still have another 3 years to go to PIF this loan!

I started thinking about what we could have used that $3402.44 towards. And realized that we would still be paying off this car for 3+ more years. That would mean loosing more money every month to the interest. Sure, it’s been nice having a new car. Sitting in something safer, nicer and more luxurious than my previous vehicle, made me feel good. Seeing the wasted money increase every month did not.

We thought about trading the car in, and finding something less expensive. But the depreciation on a vehicle is ridiculous. We owed more than what we could get for trade, and I know the game. That guy at the dealership who is acting like he’s doing you a favor, is just thinking about his commission check.

We were stuck, and needed to to find a solution.

The solution that looked to be the best case scenario, was to get laser focused on that car loan and just pay it off. The remaining balance on the car was just under 20K. Funny, because that’s actually the price of a good used vehicle. Sure I had the car I wanted, but that cost us a bit of green. We restructured the budget, and tightened up even more. I figured it would take us about 15 months to pay off the loan if we got really serious about our spending and our money.

Getting serious… I mean real serious.

This plan looked doable on paper. The real work was executing the plan. Of course if we got hyper crazy on paying off the loan, we could figure out how to make 15 months into 12 months. Our goal was set and we decided we had 12 months to make it happen.

Q1 is done, and we’re mid Q2. We are on track! This month is the second phase of making our additional payments to the car. Every little bit helps. When we reconcile our budget at the end of the month, we take any left over or additional money and apply that to the car loan. We have had 2 months so far that we were able to put an extra unscheduled $100 towards the loan. My trick is to get creative with the groceries, and plan our spending and family’s additional expenses.

Things pop up. We’ll need additional maintenance on the car, tires and other things. So we plan. Hopefully there won’t be any major surprises. Part of budgeting is to have a little safety net, “bucket of money” for those unexpected surprises that life tends to hurl our way. Having that extra money on the side for emergencies can be tempting. Luckily we are in a position where we got on a budget and learned how to control our spending. But that takes time. You have to get over the initial temptation of knowing the money is there, but can’t be utilized…

The smart thing to do is go into things with a plan.

I’ll do an update later on in the year. Hopefully we will stay on track and make our goal a reality!

You can’t afford that extra bill!

You might have read that I’m kinda a bit of a budgeterian. I believe in the B word. It’s been working for me and my family for over 2 years now.

Life on a budget is a choice. Once you accept it and agree to it, it really can work for you and become part of your lifestyle.

Even wealthy people budget, heck, how do you think they got all that money? Not everyone is fortunate to win the state Lottery, Megamillions or Powerball! So for those of us who don’t have winning numbers in hand, or stupidly rich aunts and uncles to leave their unspent fortunes to, there’s plain old BUDGETING!

I’ve been asked on more than one occasion, from those who are on a budget and are using my service as an accountability partner, “If it’s OK to take on another bill, and add it to their budget, for something that isn’t quite an emergency.”

Let me preface 2 different scenarios: Both families are already over budget on their monthly bills, meaning that they make less than what is needed to cover current living expenses. However, over the past few months they are making progress in getting not only out of debt slowly, but not regressing to their old ways. (No new credit purchases, and curbing unnecessary spending.)

ONE Family one recently had a car accident, totaling the family vehicle. No major injuries and luckily received a generous payout from their insurance company claim.
This family had a fairly manageable amount of credit card debt that they were already in the process of paying off. Minimum monthly payments keep the collectors from calling, but don’t do much to the overall amount of your debt. Credit companies make money on the interest you pay them, every month.
A majority of that insurance check paid off what was still owed to the bank for their totaled car. A small bit was left over to put towards a replacement vehicle. Their question to me was, “Can we get into a new vehicle, with an OK interest rate and payments only a little more than what they originally were paying.”

My response, “NOPE, NOPE, NOPE.”

Reason: They were already over on their monthly budget. The car payment, now gone, was a minor financial relief. The lack of a car payment now brought them to a point of budgetary break even. They had a small bit of money from the remainder of their insurance payout check. I suggested they shop around and get a less expensive car, but most importantly to buy it outright with the remainder of their insurance money. This way, they wouldn’t incur any additional debt, and their new monthly car insurance would be even less! This additional “found money” would help them to also pay off the $5000-ish in credit card bills that they still had.

This vehicle was really a means to get around safely, not to impress the Jones’. Sure it may not have been the prettiest, coolest or most impressive vehicle on the road, but it would be paid for. After all it’s just a car, and there’s no need to go into debt over it. Many used vehicle dealerships have clean cars with good mileage. You just have to shop around. Find something that is safe, and has good reviews, and go to a reputable dealership. You have more negotiating power with cash in hand over any financing situation.

Then once ONE family was debt free, which would take about, 2 years, they could then save up for a newer vehicle if needed. Again, budgeting for it, save up and then pay cash and not financing it. 🙂

No need to try and keep up with everyone else.
Focus on your OWN goal.
Their journey is not your journey.

Family TWO was also over budget every month. Between having kids and not making enough at their 9-5 jobs, they were stretched beyond their means. As a parent, I understand how difficult it is to have to scale back on your child’s extracurricular activities, so that usually means putting things off for yourself instead, in an attempt to afford it all. Part of being on a budget is to live within a set goal of allowed spending and to not live beyond your means. This family still had a large amount of debt to tackle, PLUS 2 car payments. Their question to me was, “We want to get some dental work done, and can put it on a zero interest account through a credit company. Can we just add that to our current budget?”


Reason: Family TWO was already living well above their means and had substantial credit card debt. They brought in less on their monthly income than what their current actual monthly bills were. After getting a budget plan in place they were slowly starting to make some progress. Receiving an income tax refund, helped to propel them in a positive direction. With that and some careful monthly planning, coupled with some massive over time hours, they were almost making enough and nearly at break even. Every little bit helps.

However they still were over budget every month and the overtime wasn’t going to last forever. Sure, getting some dental work was needed, but they couldn’t afford an additional monthly payment on their budget. Even if it was only $5, which it was not. The $50-$100 additional bill each month would put them further into the red. However there was a bit of a silver lining. They were nearing having both cars paid off. If they could just hold off on any additional spending for the next 6 months, they could then plan to utilize a portion of their budgeted car payments towards their upcoming dental expenses.

Sure my response might not have been what they wanted to hear, but the end game and goal to budgeting is to not go further into debt. Plan how and when to spend it, and do it wisely.

At the end of the day, it’s all about creating good and sound spending habits.