THIS chart helped curb my overspending habit-- I think it will help you too! Check it out, it makes saving much more fun! -S

How We Got Out of Car Debt


Do me a favor and drive though an average, middle-class neighborhood in your area. Maybe even your neighborhood.


Notice all the things with motors.Usually, I am not one for comparisons, or spending time dwelling on how other people live—but this is a great, early exercise in awareness.  


Awareness that most families have a DEBT problem. 


 NGFI fun fact: Americans owe more than $1.2 trillion on auto loans, the highest in U.S. history. Auto debt has grown 75% since the end of 2009.Consider the cost of the two or more cars the average family has. Perhaps they even have a toy or two, like amotorcycle, RV, four-wheeler, or boat.   

Does the sum of these items exceed the mortgage payment on the house?Where I live, the answer is often YES. And this is the biggest reason the middle class stays feeling broke and living paycheck to paycheck, despite above-average paychecks. 


The sum of these depreciating assets can be greater than the house too! Gasp. 


The wife has an SUV because you know, kids just couldn’t possibly fit into a sedan. The husband has a truck, a big one, because kids and hauling around the toys. Like the family boat.

I know because this was US.


I had the Jeep Grand Cherokee because I had a good job, we wanted a family, and I deserved it.   

Hubs had a four-door full-sized truck, with a snowplow attachment. You know, just in case. We had TWO boats, but felt like we were doing well because they were cheaper and paid for. 

Our car payments were $1,135 per month, and our home mortgage on a 30-year loan was $1,210. Ew. Almost as high on the mortgage. And we were INSTANTLY underwater on both of our vehicles. 

Why do I not see mortgage debt as an issue? 

Historically, homes rise in value and outpace that pesky inflation thing. Meanwhile, the value of things with motors drops like a stone. 


This means that in 3 years, you lose over half of the value of what you thought was an asset. This, my friends, is BAD DEBT. 

Funny, because often this same group worries about the stock market being too risky, and laughs as news headlines talk about a 25% market drop. Funny, mostly, because the market will come back up, and increase in value over time. But that new Ford? Not so much. It will drop 30% in one year, sometimes as soon as you drive it off the lot. But, it will never bounce back like the stock market. It will keep dropping 15% per year, for the next few years. Ouch.  

Well, that was depressing. Let’s talk about something happier: How much car can I own?

In personal finance, and in the world of Dave Ramsey, the rule of thumb is that the total value of ALL of your things with motors should not exceed half of your family’s annual income, aka that gross income. 

For example, if you make $100,000 a year -- all things with motors should be no more than $50,000 COMBINED. 

What do I do if I own the right amount of car, but I have pesky PAYMENTS? 

There is nothing more I hate than people having PAYMENTS on depreciating assets, and having NO plan to pay them off quickly. 

First, I recommend you start with Dave Ramsey and the Debt Snowball, where you pay off all your debts, one at a time, smallest to largest. There truly is no other guru in the personal finance space quite like Dave Ramsey when it comes to getting out of debt and protecting yourself with the right kinds of insurance.  

If you have debt, start with him. Start paying off each debt, one by one, until you OWN all of your cars. 

There is really nothing like getting the title to your car in the mail. 

What if I have the wrong amount of car, and our total is above 50% of the family income? 


  1. Find out how much you owe on the car. The first step is figuring out how big the mess is. This is a nerve-racking moment, but the starting point of all great debt-payoff journeys. 
  2. KBB your car. You may even have to KBB (Kelly Blue Book) your car to see how much it is really worth compared to that remaining balance.
  3. Decide if you’re going to keep or sell. If you have equity in your car, or if your car is worth more than what your loan amount is, there are two options: Pay down the debt because you genuinely like the car or, get out of it and sell this depreciating asset. 
  4. Bonus: What if I am underwater on my car loan? There are many wonderful resources all over the world wide web on how to manage selling your car if you are underwater. Underwater is a term us folks in finance use when you owe more than your car is worth. Basically, you can take out a loan to cover the difference on what you owe, or you can save up that cash and cover the difference in what you owe. Say you are like me, and you financed your car at a credit union. Go to that credit union, explain you would like to sell your car, pay them the cash, and then take our an unsecured personal loan for the remainder to be done with that debt. Remind them that the unsecured debt (aka there is not an asset that can be taken to pay off this loan) was already there, since the car was not even worth the money it would bring if the car was sold private sale (like on FB Marketplace, aka my favorite place to sell a car!).  
Car payments could cause you to eat cat food in retirement. 

Cars are a quintessential part of American culture. They represent freedom, mobility and endless possibilities. Unfortunately, if you’re not careful, cars could also mean that you are not properly prepared for retirement. 

That $35,000 hunk of freedom you buy can cause you to live a life of deprivation later on in your life, when you are supposed to be enjoying retirement.Avoid sinking too much of your money (that you worked so HARD to earn, and spent the best years of your life earning!) into depreciating assets at all costs and remember to run the math whenever you are purchasing a thing with a motor in it.You’ll thank me later. 

Happy number crunching, aspiring retirees.

-- Sarah


Sarah Brandenberger is the founder of Nerds Guide To Financial Independence, a brand dedicated to showing that financial independence is possible through real estate investment. She began her debt free journey in 2017 and quickly became a voice for budgeting and personal finance information as she and her husband paid off over $100,000. They discovered real estate investing and now own four properties while helping others towards the path of FI.


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