Sally Reed
Nobody welcomes criticism about their finances, even when offered kindly and meant to help. Kristen from Houston experienced this on The Ramsey Show when she described her long battle with consumer debt and a recent purchase of a $58,000 Ford F-250, which carries monthly payments of over $900.
Despite owing more than the truck’s value and additional debt on an RV, Kristen insisted her choices were savvy. Hosts Jade Warshaw and Rachel Cruze disagreed, advising that renting is cheaper than debt financing. Their advice highlights prudent financial practices relevant to many carrying significant auto loans or other consumer debts.
Kristen’s Costly New Truck Purchase
On a recent episode of The Ramsey Show, a personal finance advice program, Kristen shared details of her and her husband’s long struggle to eliminate consumer debt and buy property. However, Kristen also disclosed they recently purchased a $58,000 Ford F-250 truck for which they still owe $56,623. The show’s hosts criticized this decision, but Kristen insisted she would not change her choices.
Kristen’s truck loan demonstrates the auto debt crisis plaguing the U.S. Kristen’s monthly truck payment of $946 far exceeds the average of $770. Combined with RV and lot rent payments, her total monthly expenses are $2,100-more than half her annual income of $121,000.
Living in an RV is Cheaper Than Renting
While Kristen believes living in an RV is cheaper than renting, the facts suggest otherwise. Renting an average Houston apartment would cost $1,550 per month, less than her current housing costs. Renting also avoids depreciation costs, as new vehicles can lose 20% of their value in the first year.
The hosts recommended Kristen sell the truck and RV and rent them for a while to establish financial stability. Their advice reflects the need for greater financial literacy. Without basic budgeting, money management, and long-term planning skills, it is easy to make poor financial choices that lead to overwhelming debt and financial insecurity.
The Soaring Auto Loan Debt Crisis in America
The debt crisis in the United States is becoming increasingly severe, and auto loans are a major contributor. According to recent Federal Reserve Bank of New York data, Americans owe over $1.6 trillion in outstanding auto loans, nearly equivalent to the total student loan debt.
As of December 2023, the average interest rate on a new vehicle loan in America was 9.6%, with a monthly payment of $770, according to Cox Automotive. That means the typical American buying a new car today owes nearly $10,000 in interest over a six-year loan term. Interest rates and monthly payments can be significantly higher for those with poor credit.
Average Car Loan Terms Today
According to recent research, the average new vehicle auto loan in the United States has a term of 69 months or just under six years. This is an increase from an average of 63 months just five years ago, showing Americans are taking on increasing amounts of long-term debt to finance vehicle purchases.
A longer loan term may seem appealing as it lowers the monthly payment, making the vehicle appear more affordable. However, the buyer ends up paying thousands more in interest charges. The depreciation and mileage on the vehicle also increase substantially over the longer period, reducing its trade-in or resale value.
Kristen’s Finances Compared to Her Peers
As seen on The Ramsey Show, Kristen was in a precarious financial position due to excessive consumer debt and high-interest auto loans. According to research from the Federal Reserve Bank of New York, Kristen’s situation is not unique.
Kristen owed significantly more on her Ford F-250 truck than the average American with an auto loan. While Kristen believed living in an RV was more affordable than renting a home, host Jade Warshaw and Rachel Cruze disagreed.
The Depreciating Asset of a New Vehicle
After purchasing an expensive new vehicle, many owners fail to realize the significant depreciation, especially within the first year. According to Kelley Blue Book, most buyers can expect their new vehicle to depreciate roughly 20% by the end of the first year of ownership.
Depreciation is an often overlooked cost of vehicle ownership that should factor into any buying decision. The higher the initial purchase price of a vehicle, the more substantial the depreciation expense becomes.
Renting vs. Buying – The Ramsey Show’s Take
The recent case of Kristen on The Ramsey Show highlighted the financial perils of purchasing depreciating assets like vehicles. Renting accommodation and vehicles would have alleviated her debt burden and freed up income to pay off liabilities instead of taking on additional debt to finance the purchases.
While purchasing a home or vehicle may seem appealing or even necessary for some, the reality is that these kinds of acquisitions often lead to a cycle of debt that can be difficult to escape. As assets depreciate quickly, their values drop even as owners continue making payments.
Living in an RV – Is It Cheaper?
The Ramsey Show hosts attempted to explain the financial downsides of Kristen’s choices but were met with resistance. “We can’t help you if you don’t want help,” host Jade Warshaw said. Their advice to sell the RV and truck in favor of renting, at least temporarily, could help Kristen and her husband pay off debt, build savings, and work towards financial security and stability.
Kristen’s story highlights how even well-intentioned financial choices can be misguided without proper research and planning. For those seeking to improve their financial literacy and decision-making, resources like personal finance blogs, books, podcasts, and budgeting apps can be helpful tools.
Lessons Learned From Kristen’s Story
Kristen’s story highlights several important lessons about personal finance and financial literacy. According to recent surveys, many Americans struggle with financial literacy and managing debt. Kristen and her husband found themselves in a difficult financial situation due to accumulating high-interest debt from consumer loans and auto loans.
Their choice to purchase an expensive vehicle worth over half their annual income while still owing money on other debts demonstrates poor financial decision-making and a lack of understanding of the consequences. Financial literacy is essential for financial health and security.
Facing Financial Reality
Facing financial reality can be difficult, but the key is to make wise choices that set you up for success in the future. Kristen’s story highlights the importance of living within one’s means and resisting the temptation of overspending, even on appealing items.
Kristen and her husband could make significant progress toward financial stability by renting instead of taking on more debt and focusing on eliminating existing loans before acquiring new ones. Though no one wants to hear criticism about personal choices, sometimes an outside perspective is necessary to reveal blind spots holding us back.
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