Dave Says
Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Author of Financial Peace and The Total Money Makeover
Is it OK to have debt on a car for business?
I put a lot of miles on my car every year. It's the only car I have any debt on. We have a van for my wife and kids and a truck that we play with on the weekends. Both are paid for. The car I have debt on is a business car and I put about 30,000 miles a year on it.
This is my only debt, other than my mortgage. My company reimburses me monthly for the cost of this car, no matter if I have a loan or not. My thinking on this car is that it's a business tool and the business is paying for it. If I weren't in this business, I wouldn't have it. So the debt is OK because it doesn't impact my home income or my savings. Am I on track or am I way off track?
Andy in Pittsburgh, PA
Dear Andy,
Well, this is kind of thinking is normal, but I would respectfully disagree with you. If you didn't have the debt, you'd have the money which you could then invest and make work for you. No matter if it's consumer or business, you still lose the power to take those dollars you're spending on payments and interest and invest them - or play with them, whatever you wanted to do with them. Instead, you've lost the use of that money. That's the biggest thing debt does. It's an acid that eats up our ability to use our income to earn more money. That applies even in a business setting. For instance, the radio equipment and cameras in my broadcast studio cost us around $100,000. That equipment makes me money, so is the debt not OK in that situation? No, because I would still have to pay out to some bank what would have been profit. So I don't have payments on this equipment.
You can limit some of the damage by driving a minimal vehicle. Even if your company has some guidelines about what type or condition car you drive, you may still be able to get by with a nice older car - for instance, a seven year old Mercedes Benz 300E that you run 250,000 - 300,000 miles on can still look brand new. I know some companies may require you to drive a two-year-old or newer car, but I'd still recommend having the car paid off to minimize the damage to your finances.
- Dave
9/13/2004
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