Staying Away From Auto Debt Needs Long Term Planning 

It is very unfortunate that most consumers now take out a loan, whether it is auto loan or any other, without giving much thought to it. As a result, most of these consumers end up finding themselves in a debt hole from which they cannot come out easily. 

  • In most of the times it is found that people take out a loan simply because it is easily accessible and available in low and favorable terms. 
  • The one thing that they usually ignore, once again unfortunately, is their ability to repay it back. 
  • They do not consider their household budget and soon find them struggling with their payments and looking for alternative options for a suitable debt relief. 

The most prudent way to deal with your auto debt and manage your finance more effectively is to think about it long term instead of considering only the shortterm benefits. There are several reasons to say so but the most significant ones are:

  • All short term benefits are temporary essentially just like the smell of the new car or the proud feeling of visiting a restaurant in your brand new car.
  • These feelings will be replaced by mundane and uneventful in a fairly short period of time especially if you find it difficult to keep up with your monthly bills. 

It is true that your car will not be new anymore once you drive it off the showroom. It will be just a ‘thing’ that will take you to your desired places whenever you want!

However, if you want to do things in an entirely different way and also get comparatively rich in the process, it is paramount that you think about it in a different way and essentially on a long term basis. You will have to increase your awareness of auto loan debt and change your mind set about a new car.

You will come across a host of websites with lots of articles and blogs on tips to find a better deal on your car but seldom will they speak about managing your auto loan debt and growing your fortune at a much faster pace much unlike this article.

Organize your finance

To start with you should get your finance in order. This is actually the foundation of your decision about a car loan and if that is not in order you will eventually find yourself into a great deal of trouble, if not debt. If you do not want to end up with a high and unmanageable car payment you should:

  • Save for at least 6 to 9 months to create an emergency fund so that you can deal with your car repair bill payments as well as any healthcare needs
  • Consider your other consumer debts and their current status in terms of amount outstanding and your monthly cash resources
  • Consider your contribution to your 401(k) account to find out whether you do it at least to its matching point and 
  • Find out whether or not you have maxed out your Roth IRA.

If all these things are found to be favorable, you can go ahead with your car loan either from a traditional bank, of you qualify or even from any alternative sources such as Liberty Lending or any other of your choice and preference. In such conditions, you will be able to make continue with your high car payments and avoid falling in the debt trap.

Change in your mindset

Most of the times, most of the people consider taking out a loan for a new car only. However, this is a wrong mindset to stick to. You will need to change it if you really want to gain more from your auto loan. You should consider buying used cars also, if not only, and weigh the pros and cons along with the monetary savings in the form of interest, cost of replacement and other parameters. 

Expert financial advisors often suggest consumers to buy used and only used cars. There are several reasons for them saying so.

  • Apart from the savings aspect, the prediction of The National Automotive Dealers Association that the prices of the used cars will fall further by 2.5% on an average each year for the next few years to come makes this approach all the more feasible.
  • On the other hand and on the contrary, the prices of the new car will continue to rise each year for the next few years. 

That means, you will be better off with your auto loans and even find the best deal if you look for used cars that are certified, high quality and properly maintained. However, to buy a used car, there are a few things to keep in mind to make the most out of it such as:

  • The model and year should be comparatively current
  • The dependability should be high rated and
  • Check the Consumer Reports to find out the latest information.

Most importantly, you should check that the purchase price of the used car is not more than 10 or 15% of your total annual income. This is actually the general rule of thumb.

Consider your total income

Your income is perhaps the most important thing to make sure that your loan does not turn out to be your debt burden. Always think in terms of your total income to get the real and bigger picture. You will need to do some simple math here to find out how much you can afford as your car payment or whether or not you can afford a car at all. 

For example, if your average household income is about $52,000 in a year, you can afford a monthly car payment of $500 as that will represent11.5% of your total income which is well below the 10 to 15% benchmark. If you add another 5% to it for gas and car maintenance it will be within 15 to 20% of your total annual pay which is affordable, even after 25% mortgage payment and 25% taxes.

See! It is all math a bit of long term planning to stay out of auto debt.