If you want to live frugally, keep your cash and drive your clunker. Let me break down why this program may not be a frugal idea for you and your family.
Here are the basics. Cash For Clunkers (CARS) is a government program that was launched spending billions of dollars to get people to "give up" their clunker for a new car. The purpose being to save on the fuel economy. Depending on the MPG, you can receive anywhere from $3500-$4500 in credit. The clunker is destroyed and the only option you have is a brand new car.
Here are a few more facts that will help you make your decision:
- A new car loses 60% of its value in the first 4 years. (Total Money Makeover by Dave Ramsey).
- The average millionaire drives a 2 year old car with no car payment. (Study from The Millionaire Next Door by Stanley and Danko).
- The people who are benefiting the most from this are the car dealerships, credit unions, and the salvage yards. Just go by and ask them. They are loving this new program. Why? Because people are getting car loans out the wazoo and the salvage yard is destroying all these clunkers. CNN states that more cars are being sold in a day than they had been in a month.
Even though the fuel economy is being helped, what about all of the destroyed cars that are going to the salvage yard? At least the cars could be given to someone who doesn't even have one.
How is it helping people to replace a paid for car with a new debt? If this program allowed used cars, I would consider it. But, even with the government credit and sales the dealerships are doing, you still leave with a payment and interest. This is not a frugal idea.
Instead, consider selling your own clunker and buying a used car. An even better way to go would be to save up cash and walk out with no car payment. How do you think car dealerships make money? Financing.
And, what do you think is going to happen when some of these families who have never had a car payment decide to participate in this program? What if they can't afford their payments? They will default on their payment and the car will be repossessed. Then, you have no car. No new car and no clunker.
So, unless you are a millionaire and have so much money it doesn't matter, why buy something that depreciates so quickly?
My frugal advice, don't get cash for your clunker. Be smart and do your research. If you do, you will see that it is not a frugal idea for our government to spend billions of dollars helping people get into more debt. It's like a debt party. Have a frugal party instead.
This is my frugal opinion.