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You don’t need anyone to help you get out of debt. You’re the smart guy in the room. You only borrow money at super low rates. You’re pocket is full of 0% credit cards. Look at your car. It’s brand new and financed 60 months at 0%.

Well, that’s all fine and dandy but let’s do the math on your brand new $30,000 car at 0%. You bought it for $30,000 and when you inked the deal, you paid the sales tax in cash. Sorry, you gotta pay that sales tax. Some folks lump it right into the payment but you’re the “smart” guy so you paid it up front. In my state of Florida, that means you paid out about $2100. Since you have the car loan at 0% your new car payment is right at $500 per month. Warren Buffet look out….the finance expert has just driven off the lot!

It’s been about a year now so we have to look at how your 0% deal compares. Let’s see, you paid a total of $6000 over the past 12 months. ($500 per month x 12 months). Woops! I almost forgot. You also paid that $2100 sales tax deal at the front end. That’s money that is gone forever. $2100 POOF! Out the window. Up in smoke. So you paid off $6000 on your $30,000 car which means you only owe $24,000. Not bad.

What about depreciation? We all know cars lose a lot of value pretty fast in their first year. If you check the calculator, you can see your car is worth about $22,000. If you had to sell it today, you would have lost a total of $6000 in car payments plus $2100 in sales tax plus $2000 in depreciation. Grand Total – $10,100 lost in your first year! You’re right. You are a financial genius!

What if you never bought that car? What if you just tossed that $500 per month into a savings account and used that $2100 to buy a “temporary” car? Would that have been a better deal for you? Let’s do some more math. $500 per month in a saving account for a year earning a whopping 2% would give you about $6120. You also have a car that is probably worth a little less than what you paid but not $1000s less.

You still want that car. You really do. So why not keep going. Once again, let’s do the math. You now have $6120. Keep paying $500 into that account every month. 12 months later you now have over $12,000. You’re still driving that $2100 Honda civic but that will change. At the end of your 3rd year, you have piled up over $18,000!

It’s been 3 years now. You have paid $500 per month into your car savings account and you now have nearly $18,000! A little less because you missed a month and you had to pull out some cash to fix the “temporary” car a few times. Guess what? That new car you almost bought for $30,000 at 0% can now be found for less than $17,000. How much do you have? More than enough! Since you have cash, you can probably find it from an original owner for far less than $17,000. It may have some mileage on it, but it will probably be less than 30,000 miles. The real bonus here is it’s yours! No payments. Free and clear. The repo guys will never be dragging this car out of your driveway at 3 am.

So there you go. The car you wanted is now yours. Not for $500 per month for the next 5 years. You just drove it away for almost half of what you would have paid. What happens if you continue to pay that $500 per month into your car account? In just 2 more years you have another $12,000 plus your car which has now depreciated down to just under $13,000.

If we did it your way (the I’m so smart I got 0% way), you would have a car worth about $13,000 which you are more than ready to get rid of . Let’s think….your way = $13,000 car and $0. A total loss of $19,100 ($17,000 depreciation + $2100 sales tax). My way = $13,000 car and $12,000 in the bank. Woops! I almost forgot. What ever happened to my $2100 “temporary car”? Did I ever sell that or is that just more money I get to add to my way?

Get off your butt! Get out of debt now!

Related to : www.fccu.org cbsmarketwatch.com www.colonialbank.com