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Updated: [April 2019]

What’s your monthly car payment?

Do you wish it was lower?

What if you had no car payment? What would you spend the money on instead?

According to Experian Automotive, the average American pays $530 a month for a new vehicle and $381 if you buy a used vehicle.

Nowadays vehicles are fancier, have more features, and are ultimately more expensive, which makes monthly payments higher.

I could do some pretty good damage in my budget if I had an extra $400.

Conversely, our budget would sink pretty fast if we had to make a $400 car payment.

Next to student loan debt, auto loans are one of the leading causes of debt in America. With all the car advertisements I hear on the radio or see on tv, it’s not surprising.

Car dealerships make buying a new car sound so easy and affordable. A quick search for “best new car deals” gave me all kinds of “amazing” offers.

To sum it up, you can buy a brand new car and get cash back, pay no interest for 6 freaking years, or get magical bonus cash.

Or you could just pay cash and never have a car payment again.

Last weekend, we bought a new car and did just that. It is a beautiful, cherry red Chevy Traverse.

It’s a 2012, so it wasn’t fresh off the lot, but it only had 75,000 miles on it (which is a steal by the way) and we’ll drive it into the ground for the next 15-20 years.

Maybe we’ll even give it to Addy some day to drive all of her friends around.

If my wife reads this she’s for sure going to give me a look and say, “stop! She’s still a baby.”

She does the same thing when I talk about her dating some day. Apparently it’s too soon to talk about her being a teenager. 🙂

Here’s the fancy deals they gave us:

Instead, we talked them down a few hundred dollars and wrote a check.

No monthly payments, no paying extra money in interest, and no hassle. We drove our car home and never have to worry about how the payments will affect our budget.

It was easily the biggest check I’ve ever written. I kind of felt like a professional basketball player writing a check for a new car.

My middle school dream of playing in the NBA fell way short, so I guess I’ll just settle for writing checks to pay for cars.

That’s okay because I’m way too slow and can’t jump nearly high enough to play in the NBA.

But There’s No Way I Can Afford to Pay Cash for a New Car!

Okay, okay. I get it, paying cash for a new car sounds like something only celebrities do, or only for cheap broken down rustbuckets. But that’s just not true.

It might be easy to look at our situation and think, “yeah, but their finances are way better than mine. There’s no way I’ll ever be able to pay cash for a new car.”

The truth is, it doesn’t matter how different your finances are from mine. A few years ago, I wouldn’t have dreamed of buying a car with cash either, unless you count middle school Jamie. We were in a stupid amount of debt with student loans, car payments, and credit cards.

When Jenna and I started dating we had over $100,000 of total debt. That was in 2013. Now we are debt free and paid cash for a new car in 2019. And we’re both middle school teachers so we’re not exactly raking in cash hand over fist.

The point is, a lot can change in a few years. And while you might not be able to afford to pay cash for a car now, there’s nothing from stopping you from doing it in a few years.

What Could You Do with No Car Payment?

A huge step to optimize your finances is to eliminate any unnecessary expenses. I would put a car payment in the category of unnecessary expenses.

I know life happens and circumstances force our hand on cars sometimes, but 90% of the time, a car payment can be cut out with careful planning and budgeting.

Think about it for a minute. Like stop reading and think for a few minutes what you could do if, starting today, you didn’t have a car payment? Grab a piece of paper and write it down.

If your car payment is average, it’s somewhere in the $300-500 range. What could you do with an extra $400 in your budget? It could change your life.

Here’s a short list of 10 things you can do if you never had a car payment. Some are uber responsible, I mean I am a personal finance blogger after all, and some are just plain fun!

1. Pay Off Your Debt Faster

I write about paying off debt all the time, so it’s no shocker that this is #1. 🙂

If you have student loans like so many people today, an extra $400 a month goes a long way to making them disappear.

I highly encourage you to use my free debt snowball spreadsheet to calculate how much faster you can be debt free by paying extra on your debt.

This is the method we used to pay off $100,000 of debt in five years. If we stuck to the minimum payments, it would’ve taken us 25 years.

Trust me, it works.

2. Increase Your Retirement Savings

Retirement might seem like a long way off, and if you’re in your 20s or 30s, it kind of is.

My wife and I started saving for retirement when we were 28ish, and we really wish we would’ve started sooner. When you’re investing in retirement, the earlier you can start, the better.

I would much rather get by with a little less today, than worry about scraping by when I’m older and don’t have as great ability to work.

Compound interest is also a magical tool that literally gets better with time. We opened a Roth IRA with $500 to get started and contribute every month. To make retirement even sweeter, we opened one for both of us.

If your employer offers a 401(k), start investing. Especially if they offer an employer match. That’s free money!

There are so many other options out there. Talk to someone you know and trust and start investing.

3. Build Your Emergency Fund

If you’re not familiar with an emergency fund, it’s just a big chunk of money you set aside to pay for unexpected emergencies. I started with a $1,000 when I was single and rented. Now we’re at $5,700 building to $10k now that we bought a house, have a kid and two dogs.

Eventually disaster will strike, and unexpected expenses will pop up. It’s inevitable. Without a car payment, the only real car expenses you have are possible repairs.

Or instead of your car, maybe a pipe will burst, or your furnace will stop working (hopefully not in mid winter like ours did). Whatever it is, when it happens, it’s so comforting to have an emergency fund set up to cover some, if not all of the expenses.

We’ve used ours to pay for car repairs and miscalculated taxes we had to pay, whoops! One winter our thermostat broke while we were out of town and our entire house froze.

Most experts recommend $1,000 to start with until you pay off all your consumer debt. After that, a safe suggestion is to save up enough to cover 3-6 months of expenses. Or just enough to give you peace of mind.

4. Save Up For Vacation

When was the last time you went on vacation?

Was it budget friendly or did you go all out?

The best way to go on vacation is to avoid going into debt, and pay cash! (I just realized I use a silly amount of exclamation points) $400 a month will quickly add up to a wonderful vacation.

We went to Cozumel for our honeymoon and spent about $2,000 total including all food, hotel, and transportation.

That’s only four months of savings if you don’t have a car payment!

If you want your vacation to be longer or more extravagant, save up for a couple more months and you’ll be all set with none of the stress!

This summer we’re going to Ireland for our 5 year anniversary. Everything is already paid for. Now we just have to eat yummy food and drink some Irish whiskey.

5. Save For a New Car, If You’re Really Into Cars

Maybe a new, fancy car is your thing! There’s nothing wrong with investing in something you love.

However, you don’t have to struggle through with a car payment. If you really want to upgrade to your dream car, or just a fancier car, pay off the one you have, then use that amount each month to start saving for your next car.

It’s definitely hard to be patient and search for a car within your budget, but paying cash is fun and you can keep using the money saved on car payments to improve your life some other way.

You can always trade in your car to help cover some of the costs too.

6. Get a Dog (or Cat) and Spoil the Heck Out of it

New pets are expensive, especially if you buy a purebred from a breeder. Even if you just adopt from a shelter, it’s pretty easy to drop $500 on a pet with all the extras.

We adopted both of our dogs, and they weren’t cheap! Gregg and Sadie both cost between $250-280, but then all the extras kicked in.

A new dog requires a kennel, dog bed, food and water bowls, a few toys, poop bags, a leash and collar, food, vet bills, and tags.

I might be missing a few things, but you get the idea. There are a lot of expenses that creep up, and our total costs were right around $500. Then it’s fun to take a little every month to spoil your new pet too! Fun Halloween costumes anyone?

Plus dogs are ridiculously cute. Who doesn’t want extra cuteness in their life?

7. Start a Retirement Fund for Your Kids

Like I said before, it’s never too late to start saving for retirement. It could be a really fun gift to your give your kids when they graduate from high school, knowing that you have been investing in their future for the last 18 years.

We’ve talked about creating a Roth IRA for our kids and explaining what it is when they turn 18. Then they have the option to keep investing as an adult or leave it sit until they are ready to retire.

Either way, the interest will work in their favor and silently build their entire adult lives.

A 529 College Savings plan would be great too! College is crazy expensive, and CollegeBacker (affiliate link) is a simple service to start investing and saving for college tuition.

Sorry if you’re now freaking out at the thought of your tiny kids in college.

When my wife Jenna reads this, I guarantee she’s going to say, “Stop, don’t say that. She’s just a baby.”

8. Home Improvements or Buying a House

As homeowners, we are always thinking of ways to upgrade and fix up our house. There are so many projects that come up during the course of owning a house, and it’s easier to fit those projects within your budget instead of piling up debt.

This summer we had work done on our chimney, and it was completely stress free because the money was already saved up and set aside! It was wonderful!

We put a little money into this fund each month to save for even bigger projects and maybe an addition some day.

If you don’t own a house and want to make that step, $400 a month adds up quickly to help build a solid down payment.

9. Buy a Season Ticket Package to Watch Your Favorite Sports Team

This is a little more extravagant, but it sounds like a lot of fun! Going to a pro sports game is expensive, especially if you factor in travel and concessions.

I’m a Minnesota Twins fan to the core and would love a season ticket package to watch them a few times a summer.

I have a tradition with friends to drive a couple hours to watch the home opener, but that’s sometimes the only game I get to watch live. I just made the trip last week and it was a blast! Plus the Twins won, so that’s a bonus.

But if you live in the same city as your team and love going to games with friends and family, it can be a great investment.

Most teams offer a lot of options for 3, 5, or 10 game packages on the low end. $400 might not cover all of it, but if you save up for a couple months, you will pay for an entire summer or winter of entertainment!

There isn’t a lot better than drinking a beer outside with friends and watching baseball.

10. Host Dinner Parties with Friends

I believe being in community is super important!

Investing in great friendships means spending time with each other, and what better way than sharing a meal together. Some of my greatest memories with friends involve food, great beverages, and a lot of laughing around a table or grill.

We’ve thrown a couple dinner parties in the last year to celebrate birthdays, and the costs can really add up if you’re not careful and thrifty.

But if you are free of a car payment, that $400 will cover a few nice dinner parties with your community of friends.

Instead of investing in your car, invest in your relationships with life long friends. It’s a much better investment.

Bonus! 11. Invest in a New Hobby

I’ve learned that adult hobbies are really expensive! It seems that no matter which new hobby I want to start, there is a big upfront cost for equipment and gear.

Last summer I bought my first bike as an adult, and before you start picturing me with leather chaps and a Harley, let me clarify, I’m talking pedal bike.

It’s pretty basic, and I use it to commute around town and it cost me $300. To me, that’s a pretty hefty investment.

Then I had to buy some essential gear to bike safely and do maintenance, like a helmet, reflective vests, chain oil, water bottle, lights, and hopefully someday super cool shorts with a butt cushion.

Other hobbies are the same way though. Take photography, downhill and cross country skiing, snowboarding, boating, scrapbooking, fishing, and painting.

All of these hobbies have upfront costs to get started and to maintain them. And chances are, the more you get into a new hobby, the more money you will spend on it.

Getting rid of your car payment will open up more doors to explore new hobbies!

Are You Ready to Ditch Your Car Payment?

Cars are super important, but they don’t need to cost an arm and a leg. You will have so many options to save and spend elsewhere once your vehicle is paid off. Invest in your future, your home, your friends, or your hobbies!

What’s Up Next?

Read more on getting having no car payment and how to ditch your car payment ASAP!

And if you’re willing to share, leave a comment, “What would you do with an extra $400 a month?”

Our budget and goals changed our lives and it can change yours too.

No Car Payment? 10 Better Ways You Can Spend Your Money

4 Responses

  1. Great ideas! We’re hoping to have my car paid off within a year (about $7,000 left), and will use that extra money each month to add to one of our other savings goals. Right now my monthly payment is $289, but we pay $400+ per month to pay it down faster. We’re trying to save as much cash as we can for the down payment and closing costs on our house, so that’s why we haven’t paid the car off yet (even though we have a lot of savings). It feels weird to write this, but it all makes sense in my head. I’m sure we’ll pay down a few thousand more, and then just dip into our savings to pay off the rest and get rid of the loan when we can’t stand it anymore.

    1. It makes sense to me! We did something similar when we were saving for our house. We paused extra payments to our student loans for a couple months and put the extra savings toward our down payment. Then once we closed on the house, we diverted back to paying off our student loans. I call it the art of achieving multiple goals at once, haha! And kudos to you for not just dipping into your savings from the start, that takes a lot of discipline!

  2. Nice list of better things to do with your money. Adding to the expense of a new car, auto insurance is much higher on a new car than an older one. This is especially true if you need to carry collision.

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