My Wife Loves Her Leased Car But We’re Broke And Can’t Afford It

Summary

The Ramsey Show Highlights: Episode Summary

Episode Title: My Wife Loves Her Leased Car But We’re Broke And Can’t Afford It
Host/Authors: Ramsey Network (Featuring Dave Ramsey and Rachel Cruze)
Release Date: December 10, 2024

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Introduction

In this episode of The Ramsey Show Highlights, Brent reaches out with a financial dilemma: his wife is deeply attached to their leased car, which they’ve been leasing to own for three years. As the lease term concludes in December, Brent faces the choice of purchasing the car for $19,000—an amount below its current market value of $23,000. However, Brent and his wife are financially strained, with mounting debts that make affording the car purchase challenging. The conversation unfolds with expert advice from Rachel Cruze and insights from Dave Ramsey, focusing on responsible financial decision-making and debt management.

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Brent’s Financial Predicament

Brent begins by outlining his situation:

• Lease Details: They've been leasing a car valued at $28,000 when they started, now eligible to purchase it for $19,000, while similar models in the market are priced around $23,000. (Brent, [00:06])

• Financial Constraints: Despite liking the car, Brent admits they lack the funds to make the purchase and would need to secure a loan through his credit union. Their alternative would be to forgo the car entirely, which poses a significant emotional challenge for his wife, Elizabeth. (Brent, [01:00]; [01:27])

• Debt Overview: The couple is grappling with $4,000 in credit card debt, $7,000 remaining on wedding rings, and a $2,500 personal loan to Brent’s parents. Brent is diligently paying $500 from each paycheck towards these debts, with the goal of clearing the personal loan by the end of January. Their combined annual income is approximately $40,000, and they don’t have any children yet. (Brent, [03:24]–[04:49])

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Rachel Cruze’s Perspective

Rachel Cruze engages with Brent’s situation by first assessing the car’s depreciation:

• Depreciation Insight: She notes that the car has depreciated from $28,000 to $19,000 over three years, raising concerns about its current value versus the purchase option. (Rachel Cruze, [00:28]–[00:52])

• Emotional Attachment vs. Financial Reality: Understanding Elizabeth’s attachment to the vehicle, Rachel suggests considering the broader financial impact. She shares her own experience, emphasizing the feasibility of managing with one car during financial restructuring:

  “I suggest that my husband and I did that. While we were trying to get out of debt, we got rid of one of our vehicles... and then we had one, just our single car... and we stayed that way.” (Rachel Cruze, [05:12]–[05:45])

• Strategic Sacrifice: Rachel encourages Brent and Elizabeth to contemplate the temporary inconvenience of operating as a one-car family. She posits that this sacrifice could eliminate a significant financial burden—approximately $600 monthly—thereby enabling them to allocate funds towards debt repayment and savings.

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Dave Ramsey’s Advice

Dave Ramsey offers a candid analysis of Brent’s financial situation, emphasizing the pitfalls of maintaining the lease:

• Cost of Leasing vs. Owning: Ramsey points out that by leasing, Brent has effectively been "renting" the car at a high cost over three years. He highlights that the interest rates on lease agreements are typically higher than traditional loans, making leasing a more expensive option. (Dave Ramsey, [02:19])

• Asset Depreciation: He underscores the irony of taking on debt for a depreciating asset, contrasting it with mortgages on homes, which often appreciate over time. Ramsey advises against financing a car purchase when the vehicle’s value is decreasing. (Dave Ramsey, [02:19]–[03:24])

• Debt Deterrence: Ramsey stresses the importance of living below one’s means to avoid the trap of "normal" financial struggles, which for many Americans include living paycheck to paycheck. He encourages Brent to reject conventional financial behaviors that lead to stagnation and instead adopt strategies that foster debt-free living and wealth accumulation. (Dave Ramsey, [04:00]–[08:36])

  “...you don't have the money yet. You can't afford this car at $40,000. You can't afford half of your annual income going to the value of a car like that. It's not good. That's not wise.” (Dave Ramsey, [04:46])

• Encouragement to Change: Ramsey advocates for making unconventional financial decisions to achieve better outcomes. He suggests aggressive debt repayment strategies, increasing income through side hustles, and reassessing financial priorities to eliminate unnecessary expenses like an unmanageable car loan. (Dave Ramsey, [08:36]–[09:28])

  “Be weird. Create your free every dollar budget today... what you realize is you've been basically renting this car for the most expensive way possible.” (Dave Ramsey, [02:21], [09:28])

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Financial Implications and Broader Statistics

The discussion broadens to include industry statistics that frame Brent’s predicament within a larger societal context:

• Paycheck-to-Paycheck Reality: Rachel cites that 78% of Americans live paycheck to paycheck, indicating a widespread issue of financial instability. Additionally, she notes that 85% of people who purchase cars do so through loans, aligning closely with the percentage of individuals struggling to manage their finances. (Rachel Cruze, [08:36]–[09:13])

• Opportunity Cost of Car Loans: She elaborates on the long-term financial disadvantages of car loans, suggesting that instead of taking on debt for a depreciating asset, individuals could invest the equivalent monthly payments. Over six years, this strategy could potentially yield $85,000, as opposed to holding a car that loses value over time. (Rachel Cruze, [09:13])

  “Most new car payments are over a term of six years. If you had listened to us and invested that money over the last six years, you'd have $85,000 instead of a car debt that's gone down in value.” (Rachel Cruze, [09:13])

• Correlation Between Car Loans and Financial Stress: The high percentage of individuals financing cars parallels the significant number of Americans living paycheck to paycheck, suggesting that car loans are a contributing factor to financial strain.

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Conclusion and Recommendations

The episode culminates with a clear message: Brent and Elizabeth must prioritize financial stability over emotional attachments to material possessions. Both Rachel Cruze and Dave Ramsey advocate for:

• Rejecting Conventional Financial Norms: By defying the "normal" path of acquiring debt for depreciating assets, the couple can pave the way for a debt-free and financially secure future.

• Prioritizing Debt Repayment: Eliminating existing debts—credit cards, personal loans, and remaining amounts on their wedding rings—should take precedence over purchasing the leased car.

• Embracing Sacrifices for Long-Term Gain: Temporarily reducing their transportation needs by operating as a one-car family can free up significant funds, enabling them to allocate resources towards debt elimination and savings.

• Investing in Financial Education: Adopting tools like the EveryDollar budgeting app, as mentioned at the beginning of the episode, can help Brent and his wife gain better control over their finances and plan strategically for the future. (Dave Ramsey, [09:28])

In essence, the episode serves as a cautionary tale against the lure of maintaining a lifestyle beyond one’s means. It emphasizes the importance of making disciplined financial choices, even when they conflict with personal desires, to achieve lasting financial health and security.

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Notable Quotes:

1. Rachel Cruze on Emotional Attachment vs. Financial Reality:

   “I suggest that my husband and I did that. While we were trying to get out of debt, we got rid of one of our vehicles... and we had one, just our single car.” ([05:12])

2. Dave Ramsey on Rejecting the "Normal" Financial Path:

   “If you guys decide that you want to continue to live normally, then what you have have so far decided is that and normal would be to go get, just keep the $19,000 car because you like it. That is normal. And you will have normal results because of it.” ([04:00])

3. Rachel Cruze on Opportunity Cost:

   “Most new car payments are over a term of six years. If you had listened to us and invested that money over the last six years, you'd have $85,000 instead of a car debt that's gone down in value.” ([09:13])

4. Dave Ramsey Encouraging Unconventional Financial Decisions:

   “Be weird. Create your free every dollar budget today... what you realize is you've been basically renting this car for the most expensive way possible.” ([02:21], [09:28])

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This episode underscores the critical importance of aligning financial decisions with long-term stability and wealth-building goals. By confronting uncomfortable truths and making deliberate sacrifices, individuals and couples can break free from the cycle of debt and achieve financial prosperity.

Transcript

[Dave Ramsey]

Brought to you by the EveryDollar app. Start budgeting for free today.

[Brent]

So I'm wondering if I'm able to purchase a car for my wife. We've been leasing to own for the three years and upcoming December, we can purchase it for 19,000. The same car is valued at 23,000.

[Rachel Cruze]

Okay, so you've been leasing it for three years. What was it worth when you started? I'm just wondering how much it's depreciated.

[Brent]

How much? No, how much was it worth? 28,000.

[Rachel Cruze]

Okay. Okay. And now it's worth 19. But you're saying you've seen it other places for 23. Is that what you're telling me?

[Brent]

Yes. With the same mileage, the same year, looks like a good deal.

[Rachel Cruze]

Yeah. Do you have the money and do you like the car?

[Brent]

We like the car, but we don't have the money, so we'd be getting a loan through my credit union.

[Rachel Cruze]

Oh, and what's the alternative? You just give it up?

[Brent]

Yes.

[Rachel Cruze]

Do you have any.

[Brent]

My wife's very attached to the vehicle and doesn't really want to consider any cheaper options.

[Rachel Cruze]

Yeah, listen, I can understand that. Go ahead.

[Dave Ramsey]

Well, yeah. Why is she attached to it? She just likes it a lot.

[Brent]

She likes it a lot.

[Dave Ramsey]

Well, the fact that she's not going to be able to consider. Is she sitting there with you? Brent, tell her hi for us.

[Brent]

Yeah.

[Dave Ramsey]

What's her name?

[Brent]

Elizabeth.

[Rachel Cruze]

Hey, Elizabeth.

[Dave Ramsey]

Elizabeth. So, um, yeah, I mean, when you put yourself in a position, when you purchase something and say, well, I'm just not. I. I don't want to look at anything cheaper. You've kind of already made your decision. I mean, if you guys don't have the money and you don't look anything cheaper, I mean, I guess the only thing that you guys have decided at that point is, yeah, you're going to take a loan out and buy the car. We would advise you differently. And so you called the show. So we'll give you our advice. I don't know if you're going to want to take it, because what you realize is you've been. You've been basically renting this car for.

[Rachel Cruze]

Three years in the most expensive way possible.

[Dave Ramsey]

In the most expensive way. Yeah. And I know, you know, you can't really tell the interest rate on a lease car, but when people, you know, actually ratio it out, it's. It's high. It's. It's usually more expensive than if you went. Got a traditional car loan for. Then you're going to take a $19,000 loan, pay interest on that, and then we're going to look up in four to five years and this $19,000 car is going to go down to probably $10,000 or $12,000 in value. So when it comes to cars, it is one of the places that financially speaking, I mean, it's kind of one of the dumbest debts you can, you can get into from a financial perspective because again, you're borrowing money and paying more on that borrowed money because the interest on an asset that's going down in value versus like a house, a mortgage. Right. You take out a mortgage, you do pay interest on that loan, but the value of that home is going up at the same time. So the car itself is not a wise purchase to make when you don't have cash for it. So my next question to you guys would be, do you have any cash available to you?

[Brent]

Do you know. We don't. Trying to get over some credit card debt.

[Dave Ramsey]

Okay, good. How much, how much debt do you guys have?

[Brent]

We have 4,000 on the credit card and we have a few monthly payments.

[Dave Ramsey]

What are those?

[Brent]

We're still. We're paying off our wedding rings, which we have 7,000 left over. And then we have some. A personal loan. We're paying back my parents, which we are. About 2500 left.

[Dave Ramsey]

Okay.

[Brent]

And I'm doing 500 every paycheck.

[Dave Ramsey]

Okay.

[Brent]

So about towards the end of January, the 500amonth will clear up.

[Dave Ramsey]

Okay. How much do you guys make a year?

[Brent]

Close to 40,000 a year combined. Yes.

[Dave Ramsey]

Is. Are you both working?

[Brent]

My wife is looking at getting a new job that could make more money soon, but we just don't have the money yet. And I don't want to make decisions on. We'll have more money later. Yeah, I want to make the decision for sure.

[Dave Ramsey]

Absolutely. Which is very wise. Very, very wise. Yeah. A $40,000 income. There's no way I would take a $19,000 loan for a car. You can't afford it.

[Rachel Cruze]

Do you guys have kids yet?

[Brent]

No, not yet.

[Rachel Cruze]

Listen, I'm going to throw something wild out here and roll it over in your minds and in your hearts tonight. But she's not working yet. You don't have children. When it comes time for this lease, like, you let it go. But if you have to be a one car family for a couple of months while you save up, what's the harm in that? Just a thought.

[Brent]

Yeah.

[Rachel Cruze]

I suggest that my husband and I did that. While we were trying to get out of debt, we got rid of one of Our vehicles, and we were upside down, but we got a small loan for it to get out of it. And then we had one, just our single car. We paid it off and then we actually found that it was doable for us for quite a while and we stayed that way. And then when it was ready time for us to have a second car, we bought it in cash. And for you guys, in this season of your life, that actually might work out better for you than a lot of other couples because she's not really working yet.

[Dave Ramsey]

And I'm going to say this, Brent, and I'm going to be very. As kind and fun as Rachel is, this comes through. But the what the life you guys just described to us from a financial perspective only is so normal. You, you know, you have a personal loan to the parents for. I'm not sure why. You got wedding rings. You didn't have the. You guys took out a loan. You have some credit card debt, you have a car lease. Like, this is. You guys are. Y'all are the normal Americans out there. But the problem is, Brett, normal is broke. Normal is 78% of Americans today are living paycheck to paycheck, meaning if you miss a paycheck, you don't have enough to cover your bills. So if you guys decide that you want to continue to live normally, then what you guys have have so far decided is that and normal would be to go get, just keep the $19,000 car because you like it. That is normal. And you will have normal results because of it. But what we encourage people is to flip all of that onto their head and actually say, what is the weirdest thing we can do? Because if I get the results of normal, which is paycheck to paycheck, living and not being able to build wealth and not be able to invest or save for the future or have any amount of money in savings. Like, I don't want to be normal. That's not where I want to be. And if you guys look at each other tonight and say, we don't want to be that, we want to be people that have no debt. We have an emergency fund. We're actually funding some retirement for the future. We have a house that we can afford. It doesn't stress us out. We have margin in our budget. Like this life that can be created, Brett, is possible, totally possible, but you can't get there if you keep doing normal things. So what Jade's saying is a one car family for a couple that doesn't have kids, is that inconvenient? Yeah. Is that weird? Yeah. But you know what? You don't have a car payment because that car payment on that $19,000 car, it's going to be $600 that you guys don't have. Like, so you have to make different decisions if you want different results, Brett. And that's going to mean not taking out a loan for a car. For you guys, the reality is a one car family. It's saying goodbye to my emotions, saying goodbye to what I want and what I love and all the things that got me to this place. And you put all that to side and you guys are like, we're adults. Yeah, we're adults and we're going to make adult, like decisions. And we don't have the money. We can't afford this car. You can't afford this car at $40,000. You can't afford half of your annual income going to the value of a car like that. It's not good. That's not wise. And I would be working like crazy to get your income up, and I would start working to get out of debt. I mean, you guys could get all this paid off. Your debt's not crazy. I mean, it's, you know, 2500, 4000. Like, you guys can get this cleaned up really fast. If you just say we're going to be weird and we're going to work 60 hours a week because we don't have kids and we're going to take side hustles, we're going to drive Uber. Right?

[Rachel Cruze]

I mean, like, here's Brent here. Let me put this in perspective. Here's a couple of interesting statistics about, about cars, because I want you to never go and have a car payment again. Number one, Rachel just said 78% of the people living paycheck to paycheck. Right. 85% of people who buy, who get a car take out a loan, or at least to get it. And I think that's a very interesting correlation.

[Dave Ramsey]

Almost everybody.

[Rachel Cruze]

Almost everybody, which is almost the same percentage of people living paycheck to paycheck. And for most people, that car payment is about $525 a month, which is very close to where you guys were at.

[Dave Ramsey]

And if you invested that instead of give it to a car company, what would that be?

[Rachel Cruze]

Well, think about it. Most new car payments are over a term of six years. If you had listened to us and invested that money over the last six years, you'd have $85,000 instead of a car debt that's gone down in value. And so be weird, Brent.

[Dave Ramsey]

Be weird. Create your free every dollar budget today. The simplest way to budget for your life.