Breaking loose

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No truck payment. No pressure to take bad loads. No one grabbing most of your settlement check. Operating debt-free might sound like a fantasy, but it’s a reality you can achieve.

Getting to a debt-free status might require running a truck longer. It could mean getting serious about maintenance, meticulous about budgeting and business records. The tax hit that comes with higher profit and no depreciation is a given.

But after emerging from under the burden of monthly payments and wasted interest expenses that come with an unmanageable debt load, the debt-free owner-operator will find himself with the financial flexibility to improve the quality of his business or personal life. Without monthly truck and credit card payments to keep up with, the owner-operator has much greater potential to build operating capital or increase income.

“There’s nothing essentially wrong with debt,” says Chris Brady of Commercial Motor Vehicle Consulting, “as long as it’s manageable.” If you can tolerate a fair amount of risk, and you’re a good manager, then a big truck payment and other debt might be elements of a perfectly reasonable business plan. Many owner-operators, though, have assumed debt loads that are difficult to manage, let alone erase.

“It’s all about financial flexibility,” says Brady, author of the 2007 Overdrive Owner-Operator Market Behavior Report, which shows characteristics of debt-free owner-operators. “If you have an unexpected business expense, and you need to take on some debt, you can do it without crippling yourself. That additional debt might put another guy out of business.”

Combined with data from the Market Behavior Report, the experiences of the following three owner-operators reveal the practices and attitudes in two core areas – equipment and business – that enable debt-free operation.

Maintaining older equipment and saving for maintenance keeps your head above water.

“Buy the right equipment for the job,” advises independent hauler Joe Cummings of Bensalem, Pa., saying this has been key to maintaining his own longtime debt-free status. He’s a local and regional equipment hauler, using a 1988 Ford LTL9000 daycab he bought with only 250,000 miles on it a couple years ago from a nearby oil company that was replacing its fleet. He paid a whopping $3,000 for it.

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“You don’t need the long-nose Pete,” he says. “You don’t need the stacks, the chicken lights. If you’re doing local work, you can get away with older equipment.”

With a sharp eye for preventive maintenance needs, you can get away with it in long haul, too.

Mark Lawver of Columbia, Mo., leased to Jasa Transit, runs a mostly dedicated route pulling a tanker with his 1996 Kenworth K100. Lawver, 31, bought the cabover partly for sentimental reasons: He’s just old enough to have been a big B.J. and the Bear fan when that TV series starring a K100 ran from 1979 to 1981.

Otherwise, he’s serious about business and extra stiff about budgeting, putting away $1,400 a month for maintenance, although, he says, “my average on maintenance is about $1,100 a month.” He pretends that extra $300 doesn’t exist. “Whatever I don’t use,” he says, “goes to a savings account, and it’s grown over time. If this truck really goes down, that’s my replacement fund. And if I have to do something big like buy drive tires, at $3,000 to $4,000, I can do that.”

Cash reserves can enable a debt-free owner-operator to respond quickly to changing market conditions. Cummings, for example, recently invested $22,000 in a 1999 Trail King hydraulic tilt trailer for hauling heavy equipment. That decision anticipated a flood of removable-gooseneck haulers – his main current competition – in his area resulting from a trailer rental shop partnering with a small carrier. With the tilt bed he was able to distinguish himself and gather a different customer or two. And being debt-free, without the stress to constantly stay loaded, Cummings also has invested time to slowly build a website to market his services.

Tennessee step-deck owner-operator Andy Soucy, watching diesel prices rising in mid-November, was contemplating his own strategic move. “I expect fuel to get to $4 a gallon this winter,” he says. “I’m trying to save as much between now and Christmas, and I might shut down to stay out of the mess of slow freight and high fuel.” With a truck or trailer payment, he says, he likely could not have afforded that.

He bought his 2001 Western Star in 2003, financed by his hometown bank for four years. “I worked with them to build my house,” he says. “They kept an eye on me when I was building it – and I did what I said I was going to do.” With good truck loan terms, he made it through four years of payments with ease. He was debt-free for most of 2007.

About 13 years ago, walking across a North Carolina truck stop parking lot, Soucy came across an older driver beside an “ancient” cabover. Soucy recalls, “I said to him, ‘That old truck’s about ready for the Smithsonian, ain’t it?’ And he just looked at me and said point-blank, ‘This truck’s paid my house off, put my kids through college and paid for itself many times over. I’ve put a new engine and a new injection system in it, and that’s about all.'”

Soucy says those words amounted to the best lesson he’s ever received, reinforcing that the truck should be a tool, not a goal.

“It’s better to make money and pay taxes on profit,” he says, “than to be under the gun of having to constantly make payments.” The rewards include increased earning potential and a boost to your family’s bottom line.

And you might be able to get home more often – and for longer, too.

Leased to Landstar Inway, Soucy’s eyes are on the company’s load boards, where he’s looking at “a lot of $1.75-, $1.60-, $1.50-per-mile loads” and waiting for the expensive freight. Being debt free, he can afford to wait. “A lot of people are just working for fuel, to make their payment, but I’ve only run 56,000 miles this year,” he said in mid-November. With no debt, that was more than enough to keep his operation in the black.

Budgeting, good records and careful use of credit cards protect the bottom line.

Cummings, Lawver and Soucy approach their operations with an uncommon attention to business detail. Likewise, sound business practices separate debt-free owner-operators from the pack, according to the Overdrive Owner-Operator Market Behavior Report. The debt-free are significantly more likely than the indebted to compute cost per mile overall and for particular operating items and to analyze business records for problems and potential solutions.

“The data points to better management techniques in that group,” Brady says.

“It’s the same old story: Make a budget and stick to it,” Lawver says. Rather than paying himself per mile, he writes himself a monthly check for a fixed amount, regardless of how many miles he runs. The fixed salary makes his personal income easier to figure, he says. He measures his success against a simple production goal of 11,000 miles. “And as far as figuring quarterlies,” he says, “if I made any more than I projected to make in the budget, the money’s sitting in the savings account, which keeps me from spending the extra. Over time I’ve built up a sizable savings.”

One particular practice from the report stands out. Debt-free owner-operators are much more likely to use credit cards only for ease of purchase, paying the debt down quickly.

“Credit cards are very dangerous and can cause a big problem, especially in our line of business,” Lawver says. He frequently uses two credit cards for fueling purposes. His BP Chase Visa gets a 5 percent discount on fuel purchases; his ConocoPhillips Citibank Mastercard gets 3 percent. “I always pay off the card before any interest is incurred,” he says. “I do this online through a direct transfer from my truck checking account so there is no chance of a mistake.” He does this every two weeks, upon receiving his settlement.

Soucy uses his Comdata fleet card for fuel discounts, but occasionally takes on credit card debt. For instance, on a recent trip to Canada he stopped for fuel at a truck stop where Comdata wasn’t accepted, so he used a credit card.

Like Lawver, Soucy pays charges down quickly, but he’s more willing to pull out the plastic. “I’ll use my credit card for major repairs,” Soucy says. “Tires, other big equipment items, stuff like that. I have a maintenance fund as well, but I try to leave the maintenance fund alone. The credit card to me is part of a maintenance fund. Sometimes it’s easier to spread a large bill out over a couple of payments.”

Remaining mostly debt free enables him to afford this kind of practice. “Debt-free owner-operators tend to be more conservative with finances,” Brady says, “but they’re also able to take on debt if they need to.”

Lawver recently moved from rural Nebraska to Columbia, Mo., so his wife, Becki, could pursue a Ph.D. in agricultural education at the University of Missouri. “If I’d had a huge debt payment, I wouldn’t even have considered it,” he says. “I didn’t change carriers, either, but I was thinking that I might have to. Since I didn’t have that big debt, I wasn’t concerned with that potential change.”

One route toward freedom from debt
Mark Lawver’s first truck was a brand-new Kenworth. It ran beautifully, but the $1,600 a month financed over five years hung a debt cloud over his head that he was not comfortable weathering. The cloud was so dark that Lawver was sufficiently tempted to sell the Kenworth to the carrier he was leased to and go to work for the first half of 2005 in their office.

When he went back over the road in June 2005, he says, switching carriers, he took a different tack, buying a 1999 International 9200 for $42,000 and financing $35,000. But in September he found the truck of his dreams – the 1996 Kenworth K100 he currently drives. He paid $23,000 for it, of which he financed $20,000, selling his previous truck.

“I actually pocketed $10,000,” he says, a nice amount for the maintenance fund on the K100. “I don’t have as big a problem with truck payments as you’d think. But where guys get in trouble is spending $80,000 for a 2- or 3-year-old truck. If you’re going to finance a truck, it’s my thinking that it’s got to be able to be paid off in three years.”

After your three-year depreciation schedule is over, Lawver says, only the interest on any remaining truck debt is tax deductible. With his first truck, he says, “the last two years I was paying tax on an extra $15,000 a year that was just out the window because I could only deduct the interest.”

Tips for getting (and staying) out of debt

  • In a long-haul application, consult with your financial services provider about whether the warranty and other aspects of a new truck would make it a wise choice for you.
  • For local/regional hauling that allows access to fairly priced, dependable service, buy an older truck.
  • Be diligent with maintenance and keep your truck as long as possible.
  • Maintain a healthy emergency fund by contributing on a cents-per-mile basis that escalates as the truck ages.
  • Avoid getting cash advances. Borrowing only encourages more debt.
  • Do as much maintenance yourself as you can.
  • Avoid credit cards unless they’re used for reasons such as fuel discounts or convenience, and paid off monthly.
  • If you’re carrying a large amount of credit-card debt, pay off high-interest cards first. Get counseling regarding debt consolidation and other steps to eliminate debt.
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