Should I purchase a car with my credit card?

Short answer is No.  Not unless you have the cash on hand and will turn right around and pay off the card. 

Why?

Credit cards are easy to use, and easy to forgot what has been charged on them.  When the bill becomes due, if you are not paying off the entire amount you will be charged interest.  No big deal right?  How bad can the interest be?

Well, if you are like most American’s and you have a credit card sitting at 21% interest, that means that for every $100 you spend and do not pay, you will be charged $25..making your total bill due $121.  Now, imagine if you charged $500 in a month, and you couldn’t pay it.  You would be charged $105, making the amount you owe now $605!  Whoa! Can you imagine what that would be if it was $5,000? That's right it would be an additional $1,050 in interest in ONE month! If you can't pay it off the next month, you will be paying interest on interest - - - stupid, crazy!

There are other avenues to obtain money for your car.  One is work (one job, two jobs, three jobs?) and set aside the money.  Maybe it is opening up a bank account just for this “car” money to go to.  Or maybe it is a container stored in your toilet tank (like in the movie Pretty Woman) where your money earmarked for something special. 

One of the easiest things I do is split up my pay check and have it go to four different accounts. 

1)      Bank account 1 - My household expenses that come out as auto-draft.

2)      Bank account 2 – My savings account for upcoming expenses

3)      Bank account 3 – My bank account I use to pay off my rewards credit card account

4)      Bank account 4 – I just opened this so I could get the $500 after three months and perks of being a customer of theirs.  I will be closing bank account 2, and replacing it with bank account 4.

Another option is take inventory of your life.  What can you sell?  Can you sell it on Facebook, or have a garage sale?  Purging your unused items clears your head and puts extra money in your pocket.

If these don’t sound like things you want to do to get a car, think if you really need it.  Can you use public transport?  How about bumming a ride off of a friend or co-worker and just springing for a little gas money to say thanks!  Or if you are like me, and live in a small town and need to be able to move, rethink how you can schedule your day/life so you can purchase a car.  Maybe a $3K car that gets you from A to B is ok. 

If you really do need a car, you can go to the bank and apply for an auto loan.  Typically the interest rate is better, and you can be put on a budgeted amount to pay (and pay it off quicker if you like).  You will need to be able to maintain the payments, and make sure that the length of the loan doesn’t go longer than the life of the car.  You would hate to buy a car for $3K and have “manageable” payments of $100 a month for the next seven years.  More than likely that car will die in a few years, and you will still be stuck with the monthly payment.

These are just some thoughts that went through my head when I was recently asked this question. Sometimes talking out possible scenarios helps to clarify the needs and the wants.