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How to Turn Your Car Payment Into a Million-Dollar Retirement

Do you ever feel like you’re out of cash before your paycheck even clears the bank? If so, you’re not alone.

Over three-quarters of Americans are living paycheck to paycheck—and that money crunch affects their ability to build a bright future.1 After all, it’s really hard to save for retirement when your biggest wealth-building tool—your income—is tied up with bills and debt payments every single month.

So, what’s one of the biggest costs holding people back? Car payments. Americans now owe more than $1.6 trillion in car loans.2 That’s a problem!

Millionaires Avoid Car Payments

According to The National Study of Millionaires, the average millionaire drives a 4-year-old car with 41,000 miles on it. And you’ll probably find a Toyota or Honda in their driveway, which are the two most popular car brands among millionaires (not Ferrari or Lamborghini).

And more importantly, 8 out of 10 millionaires buy their cars with cash and don’t have a car payment to worry about. In fact, research done by Ramsey Solutions found that non-millionaires are twice as likely as millionaires to have outstanding car loans.

You see, millionaires figured out a long time ago that trying to build wealth while being saddled with car payments is like climbing a mountain with a backpack full of bricks—it just doesn’t work! So what did they do? They avoided car loans and leases like the plague so they could save and invest for the future.

What would happen to your retirement outlook if you got rid of your car payment? Is that goal even possible? Absolutely! We'll show you how.

Dave's new book, Baby Steps Millionaires, will show you the proven path that millions of Americans have taken to become millionaires—and how you can become one too. Grab your copy today to learn how to bust through the barriers preventing you from becoming a millionaire.

Americans Spend More and Pay Longer for New Cars

Americans love their cars. Unfortunately, that love affair has led a lot of folks to make some really dumb financial decisions. Each quarter, Experian Automotive releases data on the latest car financing trends. Their latest reports show just how much car loans are crippling people:3

  • About 8 out of 10 new cars are purchased with a loan or a lease.
  • The average new car loan totals $40,366 with monthly payments of $738 at 7.18% interest.
  • The average new car loan term is 68 months—that’s more than five and a half years!

Now, take a second and let those numbers sink in. Research shows that new cars lose around 60% of their value after five years.4 So if you’re the average car buyer, you’ll spend the next five and a half years paying more than $49,000 for a car that’ll probably be worth about $16,000 when it’s paid off (if you’re lucky). Does that sound like a good deal to you?  

By then, the new car smell has worn off. So, you go out and buy another new car, and the process starts all over again.

It’s no wonder millions of Americans feel like they’re stuck in the mud, spinning their wheels without ever gaining traction. It’s time to say goodbye to car payments once and for all!  

How Your Car Payment Destroys Your Retirement

Instead of permanently dedicating a chunk of your income to car payments—and having nothing to show for it except a car that’s losing value every year—put that hard-earned money to work for you by investing it.


How much will you need for retirement? Find out with this free tool!

Simply put, if you didn’t have a car payment and instead worked with a pro to invest that $725 a month in your 401(k) or Roth IRA, you could retire with more than $8.5 million after 40 years, based on a 12% average annual rate of return. We hope you like the freakin’ car!

The good news is, you can stop this insane cycle of car payments and start saving for retirement. It’ll take some sacrifice and a lot of discipline, but it’s worth it all to change your future. Here’s how.

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Eliminate Your Car Payment Forever

Let’s say the paid-for car you’re driving now is worth $15,000. Instead of taking out another loan to buy a new car, stick with your set of wheels a little longer. In the meantime, put your $725 car payment into a good money market account specifically to save for a car replacement. In about two years, you’ll have more than $17,000 cash plus your trade-in to buy a nicer, new-to-you car without owing the bank a single penny.

Once you learn how awesome life without a car payment is, you won’t mind driving your current car a little longer while your car-replacement fund grows. What if you really get into the spirit of saving and add $725 a month to your fund for five years? Then—in less time than it would’ve taken you to pay off a new car loan—you could have $43,500 plus your trade-in to buy a new ride in cash!

Of course, you don’t have to use all that cash to buy another great used car. What you could do is leave enough in your car-replacement fund to keep growing until your next car purchase. At this point, you can stop contributing to your car-replacement fund and put that $725 toward retirement instead. Now that is something worth working toward.

Want to find out how to get the best deal on a car you love? Download our free Ramsey Car Guide today!

Can This Plan Work for You?

Getting rid of car payments isn’t a fairy tale. It just takes planning and patience. And isn’t your future worth it? No car—no matter how fancy—can give you peace of mind in retirement. That kind of security comes from having a plan and following through with it.

Looking to put your retirement vision into a practical plan? We can connect you with an investing professional who’s committed to educating and empowering you about your retirement goals. Find a SmartVestor Pro in your area today!

Make an Investment Plan With a Pro

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Find Your Pros

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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