Thursday, July 19, 2007

Car rich, cash poor

How much is your car loan? How long is it for? Many people on personal finance or getting out of debt message boards often talk about their high car loans when struggling to get out of debt. It is not common to see $400 monthly car payments. Like the old saying house rich, cash poor, they are car rich, cash poor.

According to The Real Reason your broke

"They may be spending 15% to 20% of their (take-home) pay on just the car payment," said Thompson, who supervises credit counseling for the nonprofit Family Foundations, "and that doesn't include insurance, gas, maintenance and all the other costs of owning a vehicle."

And sometimes there's more than one whopping payment. Sandra McGeary, a counselor at Consumer Credit Counseling Services of Western Pennsylvania, says she regularly sees middle-class families struggling with two payments in the $400 to $500 range. The burdens are so big that it doesn't take a major disaster, like a job loss, to send them over the edge.

"This fall they started coming in saying, 'We were doing so well. We don't know what happened,' " McGeary said. "I'll ask, 'Where did you cut back in your budget when gas prices went up?' and they'll usually say, 'What budget?' . . . A lot of times they don't know how much they can really afford, and they didn't cut back elsewhere" when their transportation expenses rose.

I like to think of my husband and myself as being financially responsibility regarding cars. We haven't purchased a brand new car since we have been married, we typically buy cars that are 2-3 years old. Currently we are driving a 1996 and 2001 one. In the next 18-24 months, we will be replacing the 1996 since it is has high mileage. I don't like to take a loan out with more than 36 months.