Car payments are expensive. The Experian State of the Automotive Finance Market Report for Q2 of 2024 shows that average monthly payments are $734 for a new vehicle and $525 for a used one.
And when you add in rising insurance costs, fuel prices and maintenance, owning a vehicle can put a serious dent in your finances.
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Not having to shell out hundreds of dollars (or more) each month could help you get ahead financially. Here are some options to avoid a car payment even while making an average salary.
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Shawn Maloney, the founder of Retire Wise LLC and an experienced financial advisor, said that to never have a car payment while living on an average salary, you should consider adopting a strategy similar to Dave Ramsey’s method of gradually upgrading your vehicle without taking on debt.
“Start by purchasing an older, reliable car for cash, ideally under $2,000, and drive it for about 10 months,” he said. “During this time, save the amount you would have spent on monthly car payments into a high-yield savings account.”
Maloney said that after 10 months, you should sell the old car — hopefully recouping most of your initial investment — and combine the proceeds with your savings to purchase a better vehicle for cash.
“Continue this cycle, gradually increasing the value of your car every 10 months,” he recommended. “This method not only helps you avoid payments but also builds a cash reserve for your next vehicle purchase.”
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Dennis Shirshikov, finance professor at City University of New York and head of growth at Summer, said a non-traditional way to avoid car payments is to take advantage of car-sharing services like Turo or Zipcar.
“These services allow you to access vehicles when needed without the burden of ownership, maintenance or insurance costs,” he explained.
“It’s a solution that works well if you don’t need a car for daily commuting and want to avoid the ongoing financial responsibility of owning a car. In larger cities, many people have found this to be a flexible and cost-effective alternative, where the need for a personal car may not be as critical.”
According to Steven Kibbel, financial planner, entrepreneur and chief editorial advisor at Gold IRA Companies, people often upgrade their car when they don’t really need to.