Nothing’s more inconvenient in life than a broken-down vehicle. As we’ve moved to more and more in-person living, a busted car can be the difference between getting to life on time or not at all.
But let’s say you’re in this position, sitting at home with your busted car, and it costs more to fix it than it’s worth. What should you do?
Ready to get your hands dirty and find out?
What Do You Do with a Broken Down Vehicle?
Shelby from Springfield, Missouri, called into the Dave Ramsey show with precisely this problem. She and her husband have a broken-down Nissan Rogue that is ten years old.
As sometimes happens with older vehicles, the transmission went out with a repair estimate of $2,900. The car itself is worth $3,000.
Shelby wants to know if it’s a dumb idea to sink another $2,900 into a ten-year-old vehicle or if they should spend the money on a new car. The catch is that getting into the new vehicle would put them $5,000 in debt for at least a year.
What do you think Dave said? The look on Dave’s face says it all. He looks at the camera, crinkles up his face, and gives the answer we don’t expect. They’re both dumb ideas.
Shelby doesn’t know what to say. She has a broken down vehicle to deal with and she wanted him to think at least one of these ideas was good.
Who Is Dave Ramsey?
If you know anything about Dave Ramsey, you should know why these ideas are dumb.
Ramsey started at the age of 18 as a real estate agent in 1978. By 1986 he had built a fortune of over $4 million and was sitting pretty. 1987 saw his fortunes change entirely. Banks changed hands and recalled $1.2 million in loans. Ramsey was in over his head and had to declare bankruptcy in 1988.
Rather than let this humiliating setback ruin him, Ramsey decided to change his approach. He spent several years rebuilding his finances. The Lampo Group, his new venture, served as financial planners for business.
Ramsey also started counseling couples in his church on managing their finances. Financial Peace came out of this period of reinvention. The book details how individuals can take Ramsey’s philosophy and put it into practice in their own lives.
Avoiding debt is one of the tenets of Ramsey’s system. His other central concept is the debt snowball effect. If you have financial obligations, pay the low balances down first. Then apply the amount you were paying to higher debts and pay those off faster.
Once you’re out of debt, don’t get back in!
Why Shouldn’t I Replace My Broken Down Vehicle with a New Car?
Let’s get back to Shelby and her dilemma. Dave thinks both ideas are stupid because it isn’t worth fixing the old car. It also isn’t worth going into debt for an $8,000 car. That car is likely to have issues that cost more anyway.
Instead, Ramsey suggests that they buy a $4,000 car and save up the $5,000 over six months. Once they save the money, sell the $4,000 car and apply all the funds to a higher quality used vehicle.
But why is Dave so dead set against car payments? It’s a $5 million answer, and you probably won’t like to hear it.
Over your lifetime, if you’re making the average American car payment of $500 a month, you’ll spend $5 million on your car. Seriously. Is it worth that?
Instead of spending all of that money on a vehicle, Ramsey suggests saving it. Take those savings and pay down the rest of your debt. You can drive whatever you want when you’ve got that under control. The reason? You can afford it.
Other reasons to avoid the new car trap are pretty easy to understand. A new vehicle almost always means a higher price point. And beyond the price of the car, you’re also paying dealer fees, maintenance, and repairs.
Getting off the lot will set you way back in your goal of financial independence. If you do have to finance to get behind the wheel, interest rates inflate the cost over the life of the loan. You just can’t get ahead.
And who cares what other people think about what you drive? Not Dave Ramsey.
What Other Benefits Are There for Buying a Used Car?
We hear you, Dave. But beyond a sweet 8-track player, what are the other benefits of buying a used car to replace our broken down vehicle?
The first is lower cost. It’s no surprise that a 2022 Ford F 150 will set you back a cool $50,000. But a 2015? Half that. Paying cash will save you even more.
Ramsey points out the following benefit in the video. An older vehicle, in Shelby’s case a $4000 car, loses value much slower than a new one. A year from now, a $4000 car is still a $4000 car.
Finally, older cars’ insurance and registration are significantly lower. The yearly cost of staying legally on the road drops, and you’ve got more to spend or save.
If you still don’t feel comfortable jumping into a used car, you should consider buying a certified used vehicle. In most cases, they go through a rigorous inspection so you can feel good behind the wheel.
Buying a Used Vehicle Can Save You Money
Hopefully, we’ve given you a few things to think about if you’re in Shelby’s situation and don’t know which way to go. It may not be worth fixing your junker. But, if you can find the right car to tide you over, you may just find your way to some financial freedom.
Have you ever had a situation like Shelby’s happen to you?
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