Deciding which bills get priority each month can at times be a difficult balancing act. Keep the lights on or the heat on. Keep watching cable or keep the internet. Keep driving or keep eating.
According to a recent MarketWatch report, “Americans tend to pay their car loans before their mortgages or credit cards each month, says Steve Chaouki, group vice president in credit bureau TransUnion’s financial services business unit. Consider: Among consumers with auto loans, mortgages and credit cards, the 30-day delinquency rate for auto loans was just 0.88% last year, while the rate for credit cards was 1.82% and the rate for mortgages was 1.91%.”
Rather than prioritize, here’s how our family completely avoids several of these most common bills.
A vehicle payment
A 2012 CNBC.com article reports that, “Experian said the average new car loan monthly payment was $452 in the second quarter, up $2 compared to a year ago. The average used car loan monthly payment rose $4 to $351.” It also noted that the average vehicle loan now stretches to 5.3 years.
That same CNBC article noted that, “The average amount financed with a new vehicle loan is $25,714, an increase of $474.”
This is exactly why we’ve driven the same vehicle (as a one-vehicle family) for going on 12 years now. While we’ve put money into maintaining our vehicle, that amount pales in comparison to a $450 a month ($5,400) a year vehicle payment. Our older vehicle also means lower insurance costs and less worry about theft in an urban environment.
A mortgage is one of those costs that many people hope to have eliminated by retirement, but we set our goal on this common bill a little bit higher. Someone paying a $200,000, 30-year fixed-rate mortgage at 6 percent interest will end up paying over $200,000 just in interest over the term of the loan.
In an effort to avoid paying so much in interest, and with a goal to be mortgage-free before retirement, we took the following steps:
- Take on a 15 rather than a 30-year mortgage
- Make extra payments toward the loan both on our own and through a bi-weekly payment plan
- Downsize from a larger, pricier home to one that was half the price
In this way, we became mortgage free while still in our 30s, which not only eliminated a strain on our finances but alleviated the stress of carrying a mortgage as well.
Credit card debt
While we might not avoid a credit card bill, this doesn’t mean that we don’t avoid the associated debt that can come along with consumer credit.
CNN Money reports that, “The average American household with at least one credit card has nearly $15,950 in credit-card debt (in 2012), according to CreditCards.com, and the average interest rate runs in the mid- to high teens at any given time.”
We tend to use cash for the majority of our purchases, which helps us keep credit card use largely for vehicle fuel and a few other purchases that we can’t make for cash (certain online items, airline tickets, etc.). We also ensure that we keep the number of cards we have and use to a minimum, and that we pay any monthly bills off in full. And in these ways we’ve managed – and continue to manage – to keep credit card debt at zero.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Calculations have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.