You hear this phrase all of the time, whether it’s on television, the web, the radio or newspaper.  You can have this now for 3 easy payments of 19.95, or you can have this new car now for 200 down, 200 a month for 500 months (an exaggeration).  What’s our reaction?  “Awesome”  “Sweet!  Now I can drive the LXUS2000!”  We do this, because we think that we can afford the monthly hit.  What most of us fail to realize is that we would likely think twice about the purchase if we heard the total cost.  For one easy payment of 59.85, or one payment of 32,500 gets you this fabulous car.

That, my friend, is the trouble with payments.  You think about things in terms of what dollar amount you can afford on a monthly basis.  All the while forgetting that the total amount is something more than what the item is actually worth because you’re paying interest for the “luxury” of having those payments.  Oh, not to mention the fact that you now owe someone and will be required to pay them money plus interest for as long as you have the loan.  Listen to me… YOU need to start thinking about things in terms of the total cost.  Businesses often evaluate investments or purchases in terms of the TCO.  Total Cost of Ownership.  In other words, what will it cost me to purchase and own product x for the life of product x.   I’m not asking you to determine how much your car will cost to own over the entire life of the car.  I AM asking you to take a few minutes to understand that taking out a loan generally costs you considerably more than the car is worth in terms of interest.

There are no such thing as “easy payments”.  Every month will be a reminder when you write out the check to the finance company.  Every month you will probably think about the 20 other things you could have spent the money on, but instead send it to a bank to cover your vehicle.  What if we turn this thing around?  What if, we saved a car payment every month for a year.  What would that look like?
If the average car payment were 380 dollars then saving that amount every month for a year would give you 4,560 dollars.  Now, I realize that won’t buy you a nice luxury car.  So, buy yourself a used 4,500 dollar car and continue paying yourself a car payment for another year.  At the end of the second year, sell the other car which hasn’t dropped that much in value during the year of ownership.  Take the proceeds and add it to your savings from year two.  You should now be in a paid for 8,000 dollar car, give or take a few hundred dollars.  Oh, and the beauty is that you don’t owe anyone any money!

Last thing on car payments.  How would you like to get to the point where you never had to make a car payment again?  Think it’s not possible?  Check out this write up by Chris Kakaras.  It details exactly how you can use compound interest in your favor to build a pool of money so that you will never have to pay another car payment again.

Wrapping this up.  Some things to consider when looking at payments, trimming your budget, and more.  Look at your monthly payments.  Is your budget being squeezed by all of these “easy” payments?  Maybe it’s time to get on a financial plan that will remove these payments from your life.  What would it feel like to live a life without payments?  What would it feel like to be able to pay cash for everything you purchase without regrets?  You can live this way… if you choose to.