It isn’t easy to talk about personal finances. More than 45% of Americans don’t even discuss finances with their spouse, and more adults would rather talk about politics or even death than money, according to a survey by Empower.
That’s why an audit of spending habits can seem like a judgment on someone’s lifestyle, even though the auditor is only trying to help.
Kristen from Houston faced an uncomfortable financial audit when she called into The Ramsey Show recently.
She said she and her husband were at the tail-end of their battle against credit card debt and were now eyeing the property market. However, their plan was complicated by a recent purchase: a Ford F-250 for $58,000 on which they currently owe $56,623.
When faced with pushback for this decision, Kristen got defensive. She insisted on “not changing what we’re doing,” and the co-hosts couldn’t seem to get through to her.
“We can’t help you if you don’t want help,” said co-host Jade Warshaw.
Here’s why a growing number of Americans need similar help in 2024.
Auto loan crisis
As of the third quarter of 2023, Americans collectively held auto loans worth $1.59 trillion, according to data from the Federal Reserve. That’s nearly the same as the outstanding student loan debt, which is at $1.6 trillion.
As of December, the average car loan had an interest rate of 9.6% while the average monthly payment was roughly $770, according to data from Cox Automotive. Put simply, Americans are sitting on a vast and expensive pile of auto debt.
Kristen was in a deeper hole than her peers. Her monthly payments were just over $946 — significantly higher than average. She also owed money on the RV that her new truck is meant to tow around. Not to mention rent on the space to park the truck and RV. Altogether, she said, her monthly payments are $2,100.
The truck and RV were worth more than half her household annual income of $121,000.
Despite the eye-watering monthly payments, Kristen was convinced living in an RV is better and cheaper than renting. The co-hosts at The Ramsey Show were not so sure.
Read more: Retire richer — why people who work with a financial advisor retire with an extra $1.3 million
‘Rent is not debt’
Kristen insisted she and her husband were making the savviest move possible, but the reality is renting would have been a better choice for the family. As of December, the median rent in Houston is $1,550, according to Zumper.
Not only would renting be cheaper, it could also eliminate another drag on Kristen’s finances: a depreciating asset. New cars lose their value at an accelerated pace, and most buyers should expect their vehicle to depreciate roughly 20% by the end of the first year, according to Kelley Blue Book.
“Renting doesn’t feel good,” said Warshaw. “It feels like we’re throwing money down a black hole … [but] it would have been better for you to rent because rent is not debt.”
The co-hosts recommended she sell her RV and truck and rent for a while before considering a move onto the property ladder.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.