One major reason why people remain chained to debt and never build wealth is due to car or other vehicle payments.

Aside from a home mortgage payment, debt obligations on vehicles rank as a top “income eater” for most American consumers.

Here is a common scenario involving a leased vehicle.  Let’s say, for example, you lease a $30,000 auto for six years. Allowing for taxes and insurance, your monthly payment will probably be close to $400. At the end of the lease period $28,800 in vehicle “rent” has been paid. Chances are good that another vehicle will be leased for a new six-year term with an equivalent amount or more going down the drain. A typical statement heard frequently is, “I’ll always have a car payment.” These words don’t have to be self-fulfilling.  

The average millionaire reaches this financial pinnacle because the vast majority avoid being chained to a monthly car payment. Wouldn’t you prefer having $400 eventually going into your personal savings or investment account instead of lining the pockets of a leasing company?

Here is an example of a strategy that can help minimize debt load and eliminate car payments forever:

Step One-At the end of your current lease term, purchase a quality used vehicle for $6,000. Finance it over four years. Assuming an interest rate of 6.5%, the monthly payment will be $151. Let’s round it to $170 to account for taxes and insurance.

Step Two-Subtract the auto payment of $170 from the previous monthly lease payment of $400. The difference is $230. Put this monthly amount into a savings or money market account. At the end of four years, assuming a modest interest rate of 5%, your total savings should be around $12,200.

Step Three-After the initial four-year period, sell your paid-for used vehicle and purchase a later-model used vehicle for $10,000 cash from your savings account, leaving a balance of $2,200. Continue to save $400 per month for another four years. The entire amount now goes into your savings account. At 5% interest, the amount will grow to around $24,000 before taxes.

Step Four-Repeat this strategy of upgrading to newer vehicles and paying cash every four years while simultaneously accumulating a substantial savings nest egg.

The transition from vehicle leasing to auto ownership takes some discipline and persistence. Is it worth the effort? Absolutely. Driving debt free vehicles is much easier on the pocketbook and you’ll enjoy great peace of mind.