The 50% Rule: Why Dave Ramsey Says Your Car Is Quietly Killing Your Net Worth

Dear Dave,
I have two cars. One is paid for, and I owe $23,000 on the other. These are my only vehicles. I’d like to sell the one I still owe money on, but no one wants to pay enough to cover the balance. I make $85,000 a year, and I also have enough money in savings, with plenty left over, to cover the difference on one of the offers. Still, I was wondering if there’s a rule of thumb to determine whether or not to sell a car in this kind of situation?
Jimmy

Dear Jimmy,
If you really love the car, and by really focusing and saving like crazy you can pay off everything else in your life except your home in 18 to 24 months, I’m okay with you keeping the car. But if you can’t? Sorry, it’s time to sell.

But I want you to hear this next part loud and clear. It also may be time to sell if the if the total value of all your vehicles—I’m talking cars, trucks, boats, jet skis and their relatives—is equal to half, or more than half, of your annual income. Why? Because these are all things that depreciate quickly. You don’t want half of your income wrapped up in things that are going down in value.

You can probably pay this thing off in less than two years if you really focus on making it happen, and you haven’t got a bunch of other debt. But if you don’t like the car, or you don’t want to work that hard to keep it, then sell the thing and write a check for the difference. I mean, when it’s all said and done, it’s just a car. And anyway, you said you’d have plenty of cash left over in savings if you went this direction, right?

But remember, if this is your decision, start rebuilding your savings to its previous level right after by putting what would have gone for car payments back into your savings account. You never know when life might throw something unexpected at you!
— Dave

* Dave Ramsey is a nine-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions. 

Dave Ramsey

Dave Ramsey is an eight-time national bestselling author, personal finance expert, and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth, and enhance their lives. He also serves as CEO of Ramsey Solutions and is the author of numerous books including Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth–and How You Can Too.