Paycheck Chronicles

Want a New Car? Try This Plan

A family member recently told me that she was going to buy a new car.  She still owed on her old car, and she was asking me the best way to organize the financing of the new car with the existing loan on her old car.  I know this has become a popular and common practice lately, but it is a bad idea.  So this is what I suggested to her:

Figure out how much your new car payment will be (it's rarely less than your current car payment) and make that car payment for a year.  (Six months if you are impatient.)  If you have an existing loan, you will have paid it down significantly, or hopefully you will have paid it off.  If you are currently without a car payment, it will help you accumulate a significant down payment for your next car.

Obviously, there are situations where you can't do this, but it is a sound strategy for most usual circumstances.  Not only are you playing smart with your existing money,but you are also proving to yourself that you can afford that new, higher car payment without making yourself broke.

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