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CEO & Founder, Crown Financial Ministries
Former businessman & real estate developer
BS, Cornell University, School of Hotel Administration
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– DEBT EXPLOSION
Howard says that 43 percent of all American families spend more than they earn each year. In fact, most spend about 10 percent more than they earn – that’s $1.10 spent for every dollar earned.
Debt harms relationships and marriages and is one of the most common causes of divorce. Howard knows from personal experience. Early in his marriage he was addicted to material things and got his family in thousands of dollars of debt. Once he learned God’s financial principles everything changed and within nine years his family was debt-free – free and clear of everything – including their home.
Howard says most people are surprised to learn that the Bible contains 2,350 practical verses on how to handle money and possessions.
AUTO DEBT TRAP – MOST NEVER GET OVER IT
Howard says after home mortgages, car loans are the largest debts most people carry and are one of the biggest roadblocks for most people on their journey to true financial freedom. (More than 70 percent of all car purchases are bought with borrowed money.) He says it is especially dangerous because most people never get out of it. Just when they get to the point paying off a car, dazzled by thoughts of a newer model, they trade it in and purchase that newer one with credit. Unlike a home, which usually appreciates in value, the moment a car is driven off a lot, it depreciates in value. Many are “upside down on a car loan” meaning you owe more for the car than it is worth. If you had to sell it, you couldn’t get enough to pay off the loan.
Howard says there are three reasons many of us are trapped by auto debt:
1) The cost of cars has become increasingly expensive.
2) Advertisers have done a masterful job of marketing an expensive image – their ads promise status and sex appeal that lead to an exciting, carefree life.
3) The cost of financing has risen significantly. Lenders now offer loans for up to 7 years for a new vehicle!
ESCAPING THE AUTO DEBT TRAP
Howard offers systematic four steps to get out of auto debt – but it also requires strong resolve!
1) Decide to keep your car at least three years longer than your car loan.
2) Pay off your car loan using snowball principles. (In addition to making the minimum payments on all your debts, focus on accelerating the payment of your smallest high-interest debt first. After the first debt is paid off, apply its payment toward the next smallest debt, and so forth.)
3) After your last payment, keep making the payments but to yourself. Put it into an account to buy your next car.
4) Buy your next car with cash. When you are ready to replace your car, the saved cash plus the trade-in should be sufficient to buy a car without credit. It may not be a new car, but you will be able to buy a low-mileage used car without debt.
OTHE CAUTIONS ABOUT CAR DEBT
If you do get a car loan, Howard strongly suggests that after you get the car dealership’s financing offer, check with your own bank or credit union as savvy buyers can often improve on the dealer’s interest rate and save hundreds of dollars. He also says auto leasing is just another name for car debt. At the end of a loan you own the car, but at the end of a lease, you own nothing. There are often charges for excessive mileage – most leases limit you to 12,000 miles a year and charge $0.20 for each additional mile which means you owe several thousands of dollars more.
If you are unable to make your car payments, you have two options – sell the car for at least the payoff amount or have the lender repose it. The lender then sells it at auction receiving a rock bottom price and can then sue you for deficiency. This destroys your credit score.
LEANING AGAINST THE CULTURE
Years ago when Howard and his wife, Bev, decided to get out of car debt, they made several key decisions. First, they chose to buy used cars rather than new ones. Then they decided to keep them as long as they were safe to drive. Because these decisions were so counter cultural, they knew they would feel pressure to buy new or trade up, so they developed a good sense of humor about their vehicles. They laughed at the cars and themselves. Bev’s car was a low mileage used car she drove for seventeen years! The last few years they called it “Puff” because a puff of smoke emerged from the tailpipe when she accelerated. During those 17 years Howard drove two cars. The first was a truck he bought for $100. He never got stressed if it got dinged, it got great gas mileage, the insurance was cheap and after several years he actually sold it for $700. His kids nicknamed his second car the “Rotten Chiquita” because the brownish-yellow color reminded them of an overripe banana. Yet he recalls driving the Chiquita to work early one morning while having a very special time with the Lord. Psalm 16:11 came to his mind, “In your presence is fullness of joy,” and Howard realized that true joy comes from knowing the Lord well, not by what we drive.
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