We know that purchases are based on emotion, so it makes sense that sometimes people will buy vehicles based on their feelings about a certain type of car or a new car versus an older car, rather than by logic and what one could and one could not afford. Sometimes people lose their jobs, and can no longer make the car payment. They once could afford, but now they cannot. This situation can happen for a number of different reasons, but when you have a vehicle you cannot afford, you have to get out of it, and here’s how to do it.
How do I know if I can afford the vehicle that I have now?
Some people are in denial about their vehicles. They buy new cars because they think they need something reliable, but in reality, they’re making ridiculous car payments upwards of $500 when their income just cannot support that. Dave Ramsey offers a great rule of thumb that everyone should follow. If your vehicles are worth more than half of your annual income, your cars are too expensive.
If you’re 1% or 2% over, it’s no big deal, but there are people that have $30,000 worth of cars and make that same amount each year, and that’s ridiculous! Cars are a liability, they go down in value. New cars are the worst offenders; they can easily decrease in price by 20% each year for the first few years. This depends on the make and model, but vehicles generally take the largest beating in value when they are new. This is why I recommend that one should never buy a vehicle that’s newer than two-years-old.