Debt Trap - Motor Vehicle

The motor vehicle is one of the greatest money draining, debt traps of all time.

Somebody said to me once that anything with a lot of moving parts will cost a fortune to maintain. What a prophetic statement. Think about it - elevators, aeroplanes, motor bikes, outboard motors and motor vehicles. See a common denominator there? Anything with an engine is a money drain.

But because most of us have one and often more motor vehicles then we are all playing the debt drain game with them. I sometimes envy those people who live so close to their places of work that they can either walk or just catch public transport.

Fuel, registration, stamp duty, insurance, theft, repairs, wear and tear - you name it - the motor vehicle will cost you dearly from the moment you own it to the moment that you get rid of it. That means that it is a liability with a capital L.

I didn't mention in the above the initial cost and the massive depreciation (loss of value) of motor vehicles, so you can add those too.

For many young men and a growing number of young women, their motor vehicles will keep them poor for years to come. Then, by the time that the expensive monthly repayments are almost finished it is usually repeated all over again.

With respect to "trading-in" a motor vehicle the most crucial consideration is what is known as the "change-over price." That is the difference between the cost of the proposed new vehicle and what is offered to you for the old vehicle.

Here are some examples:

Option A - New vehicle price = $18,900, Trade in vehicle = $3,900, Changeover price = $15,000

Option B - New vehicle price = $21,900, Trade in vehicle = $4,900, Changeover price = $17,000

Option C - New vehicle price = $17,900, Trade in vehicle = $2,500, Changeover price = $15,400

These are the figures that Motor Vehicle Dealers (MVD) manipulate to make the greatest profit. Obviously, they will try to sell for the highest possible price while offering the lowest possible price on your trade-in. This, of course, maximizes the change-over price - your cost.

You will see from the above that Option B is the most expensive, Option C is next while Option A is the least expensive.

I hope that this demonstrates that getting the highest value for your trade-in vehicle isn't necessarily the best option.

Motor vehicles are hugely expensive all the way from purchase to repairs and all the fees and charges in between until final disposal. If you want to remain poor then keep doing vehicle change-overs - especially like Option B above. This will keep you in debt forever.

Please share this information with a young person looking at purchasing or upgrading a motor vehicle or anybody intending to trade-in a motor vehicle.

About the author:

Gary Simpson has written nine books on various subjects including "How to Save $1000's and Increase Your Net Wealth." If you are looking for a better financial future then go to Turn Debt Into Wealth.