Cash for Clunkers Might Not Be Such a Good Deal
It's official - the Cash for Clunkers program is a hit. But while that might be good news for the ailing auto industry, it's not necessarily good news for consumers.
In case you're not familiar with the program, here's how it works. When you turn in a low-mileage vehicle for one that meets higher-mileage guidelines set by the government, you get up to $4,500 off your purchase. Sounds like a lot of money, right? But not when consider that Cash for Clunkers presents the same problem as the blowout sale at your local discount store.
Let's say you buy a pair of shoes normally priced at $50 for 50% off. You might think you're saving $25 - but that's only true if you planned to buy that pair of shoes no matter what. If you only purchased them because of the sale, you're actually out $25. It's the same thing with cars. If you were dead-set on buying a new hybrid anyway, then yes, you're getting a great deal. But if you're using the incentive as an excuse to get a shiny new toy that you really can't afford, then you're not getting a bargain - in a way, you're getting ripped off.
Don't get me wrong - I'm all for improving environmental health. And government incentives are certainly one way to encourage consumers to make green choices. But what good is a brand new fuel-efficient car if you can't afford to keep it - or if it jeopardizes your other financial commitments?
Sometimes I think Americans forget that new cars are luxury items - we don't actually need them. A reliable used car can work just as well, particularly if you've already paid it off. And what about walking, biking or taking public transit to help the environment, not to mention save money on gas - even if its just a couple times a week?
I'm not saying that Cash for Clunkers isn't a good program. I'm just saying you should probably consider the consequences before getting behind the wheel of a brand new vehicle. If you wind up with a $500 car payment, it will only take nine months to match - then start exceeding - your savings. Then there's the depreciation issue. A new car can lose one-fifth or more of its value the day you drive it off the lot. In five years, it could be worth just half the price you purchased it for. A used car, however, will stay pretty stable.
If you're looking for ways to save money, why not take a look at your debt? Taking on too much debt - including large car loans - is one of the reasons we got into this financial mess in the first place. And thanks to interest, the more debt you have, the less you can usually pay off - a vicious cycle that makes financial freedom seem always out of reach.
But it's not out of reach. There's another government "program" that can help you survive this economy, and this one's written into the U.S. Constitution. I'm talking about bankruptcy - often the fastest way to debt relief. When you fill out our personal debt analysis form online, we'll set up a free one-on-one session with one of our Chicago or Atlanta bankruptcy attorneys. Rather than add to your debt, why not pay it off for good?