Is a Clunker in the Works?
Stacy is about $75,000 in debt. She and her husband make $100,000 a year, and they owe another $4,500 on a truck. Should Stacy sell her car and buy a clunker?
QUESTION: Stacy in Virginia is about $75,000 in debt, and $9,000 is from credit cards while $30,000 is a car loan. She and her husband make $100,000 a year, and they owe another $4,500 on a truck. Should Stacy sell her car and buy a clunker?
ANSWER: Yes, you should do that. And the reason I say that is this: It’s half your debt! You could be debt-free very quickly making $100,000 and only owing $45,000, then save up and get yourself a nice car. If you want to save all the way to $30,000, you can at that point. I’m guessing if you were sitting there debt-free today with $30,000 in cash, I’m not sure you would buy that car. I extrapolated that out of what you said and how you said it. That’s one of the reasons I jumped on it and said sell it.
If your broke friends are making fun of your financial plan, that’s a good place to be. It’s like fat people making fun of your diet. I think I would just sell this car. If you go on and on about how this is your favorite car in the world and you love it and you are willing to fight to keep it, then what we’re saying is you’ll be in debt about another year or year and a half to clean that up. I wouldn’t do that personally because I think it’s too big a chunk out of your situation.
You could be so debt-free so fast here and then save up and buy whatever you want. So we’re really not saying to drive a beater for long. Most wealthy people that I know, most people don’t know they are wealthy. A lot of people who drive around in nice cars and take fancy vacations are putting them all on a credit card. When in reality they are living paycheck to paycheck making $120,000 a year. If they laugh at me, I’m looking at that as a badge of honor.