Consider the Real Cost of Cash for Clunkers

Thanks to the new government incentive program Cash for Clunkers, we might be seeing a lot more hybrid and other low-mileage vehicles on the streets - and that's both good and bad.

It's good for the auto industry, because it spurs people to buy more cars. And it has potential to be good for the environment, if people who would have otherwise purchased a less fuel-efficient vehicle opt for a greener version. But it might not necessarily be so good for the wallets of consumers.

In summary, here's how the program works. You trade in a low-mileage vehicle for a version that gets better gas mileage, in accordance with government standards. In exchange, Uncle Sam knocks between $3,500 and $4,500 off your price tag. Looks like a great deal, right? Well, that depends. If you planned on buying that cute new Prius come hell or high water, then yes, you're getting a bargain. If you didn't plan on buying a new car - either because you couldn't afford it or didn't need it - then it's a different story. You can actually lose - rather than save - up to $4,500.

Incentive programs can be similar to store sales. Let's say your favorite department store is having a blowout sale - 30% off all shoes - so you pick up a pair that would normally retail for $50 for just $33.If you had been meaning to buy a new pair of shoes, then you just saved $17. But let's assume you already have plenty of kicks and you weren't planning on buying anything - just window shopping. So thanks to the sale, you were encouraged to lose $33 that you really couldn't afford to part with -- $33 that could have gone to groceries or the mortgage payment.

Maybe I'm exaggerating a bit, but a pair of shoes is nothing compared to the cost of a new car. If your loan payment is $400, your savings will evaporate in less than a year - but you'll still be stuck making payments. Then there's the price of new insurance. And don't forget about depreciation - a new car loses value the day you buy it and can actually decrease by half its original value in five years.

Cash for Clunkers might be an excellent program -it's still too soon to tell. All I'm saying is, consider the cost of buying a new car, not just the benefit - especially in today's economy. And particularly if you are already up to your neck in debt, as so many of us are.

Being careless about debt - including taking on car loans we can't afford - was one of the many contributing factors to the current recession.

Debt is a trap. The more you take on, the more interest you owe - and the more you come to rely on debt. But there's a way to break free - bankruptcy. Like Cash for Clunkers, it's provided by the government. But unlike a new car, bankruptcy will actually eliminate your debt rather than add to it. Interested in finding out how bankruptcy can stop repossession, lower you debt payments and help you find financial freedom? Sign up for a free personal debt analysis with an Atlanta or Chicago DebtStoppers attorney. Isn't it time you found yourself on the road to financial freedom?

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