Tuesday, February 28, 2012

Frugal Tuesday Tip: Pay Cash, Avoid Interest

I'm home with a sick baby (who is snuggling up next to me) today so I'm going to link up to Frugal Tuesday Tip @ Learning the Frugal Life.

This week my tip is to avoid the high cost of paying interest.   When we took Financial Peace University, one of the things we learned was that in order to become financially independent,  you can't be making payments to a bank all of your life.

As it tells us in God's life handbook...the borrower is slave to the lender: Proverbs 22:7. 

Following dumping all of our credit cards, our family became passionate about paying off all of our debt.

At the time, we were paying 6.7% interest on Justin's Honda Accord making monthly payments.  We sold the car, got rid of the payment and paid cash for a sweet....2002 Chrysler Town and Country. 
Pretty sweet, huh?  Especially when you are age 27.  :)  Was it glamorous?  Nope!  Did our friends make fun of us?  Yup!  But--it was a car we could pay cash for at the time.

Instead of making the monthly $300+ car payments (much of which was interest), we started socking that amount away in a savings account.  Month after month, we were paying ourselves instead of the bank.  This method has allowed us to pay cash for 3 other vehicles since the van (not brand new) AND been pivotal in allowing us to pay cash for a house, eliminating even another monthly payment.

So, if you are paying outrageous monthly interest on a car (or anything) that's depreciating anyway, don't do it.  Sell it, downsize and start paying YOURSELF that amount each month!