Vision Credit Education, Inc.

One troubling trend that our counselors find is that Americans are spending an ever increasing percentage of their income on transportation costs. Now that the price of gasoline is increasing, already strained budgets are at the breaking point. There is a way out.

Reduce Current Transportation Costs

If you are locked into a long-term installment loan for your vehicle, then you might find that you owe more than your car is worth. Being upside-down in a loan means that you have denied yourself the ability to sell the car before it is paid off.

There are a number of things you can do to reduce your variable transportation costs:

• Properly inflate your tires. Under-inflated tires can waste 10 cents of every gallon of gas. That’s an extra $1.50 or so a fill-up!
• Find cheaper gasoline. Volunteers routinely report lowest gas prices within 72 hours to gasbuddy.com.
• Carpool with friends or charge for rides.
• Keep your engine tuned and change your air filter.
• Change your oil regularly to prevent costly repairs.

These can all help reduce some costs. However, the real problem is that we find many people who spend half of their income on transportation.

Some people like to have a nicer car, and that is fine if you are prepared to cut back in other areas. Sometimes there are other circumstances that may make waiting for that nicer car a wise decision.

Here are some rules of thumb for vehicle purchases on a strained budget:

1. Never spend more than $10,000 if you cannot get an interest rate below 10%. You might end up driving a Corolla while paying for a Lexus.
2. Never finance a car for more than 54 months. You need to preserve positive equity in the car in case you need to sell it. If you cannot afford the payment, then look at a cheaper car rather than extending the loan.
3. Focus on the purchase price and interest rate. Sales representatives will try to distract you to focus on the payment.
4. Always demand a lower interest rate. Their commissions are higher if you agree to a higher rate.
5. Avoid costly add ons, such as rustproofing and extended warranties.
6. Drive your car for at least a year or two after paying it off. This is the best way to get your money’s worth.
7. Add up your monthly insurance, maintenance and gasoline costs. If they exceed 30% of your take home pay, then you are digging yourself a huge hole.
8. Transportation costs should not exceed normal housing costs. Invest in a home before becoming a slave to your car.
9. Take care of your credit to reduce borrowing costs and insurance premiums.
10. Delay buying a car whenever possible. Give yourself time to change your mind.

Some people agree to buy a car with questionable reliability, using poor credit to get a high interest rate loan and extend the loan for 72 months. In addition, they make matters worse by rolling over a previous loan balance into this loan. If this sounds familiar, you have virtually guaranteed yourself to experience financial ruin within the next several years.

Do yourself a favor and make sure that you are meeting your transportation needs in a conservative and cost-effective manner. Everyone likes that new car smell, but no one likes being a slave to their car!