Debt

[P1et]

I am of the philosophy that unless you can pay for it in cash, don't pay for it. Apart from a house, of course.

There is a guy at work that was driving a brand new '08 Ford truck. He is going to get rid of it, and drive around in a $500 Ford he just bought. He will drive it for a couple of years to save money and with that pay of some debt.

Seems like the responsible thing to do, right?

[etml12]

Originally Posted by Pennypacker

I'm still debating whether I should sell my car, though. That's a tougher one for me to decide. I'm fairly certain I could get around 21k for it and that would go a long way towards knocking down that student debt. My head is saying one thing and my heart is saying another..

Penny, something to keep in mind that appears to be often overlooked is what you actually still owe on the vehicle. The vehicle may be worth 21K but if you owe nearly that much or worse yet are upside down you may not feel very unburdened. Less the fact that you could contribute the monthly payment towards other sources of debt.

Similarly, I'm startled how many people I've seen trade their vehicle in simply b/c they can get credit approval for a bigger/better/newer model. This completely undermines their ability to get ahead on their auto debt.

[bumoftheday]

I'm at the point where I am really debating what I want to do with a car. I'm in a good financial spot, I own a house, I have no credit card debt, my current car, 05 Mazda 3 with 51k miles, will be paid off very shortly (when I get my tax return), my student loan of 2k has lower interest than my savings account, so I just pay that monthly, and I have 6 months of net pay in my savings, which I will keep if I get a new car.

I really want a new car. I'm at a stage in my life where I can get something impractical, I'm young and single with a good job with a Fortune 1000 company. Between trade equity and down payment, I could buy a nice car straight up. I want something fun. I throughly enjoy driving. I can put a smile on my face by driving, if I have something fun to drive. The 3 just isn't doing it anymore. I could easily afford the payments on a RWD luxury car, as they seem to be the only practical RWD cars.

I had made up my mind on buying a car like that, but every so often I think I could buy a Civic in cash and be practical. Is fun worth it? I will still be able to save money and will always have a positive equity on the car I want. I base my bills on worst case scenario (no OT and no outside sources of OT), and currently have a roommate and overtime(which will continue for a while) adding to that.

What to do...

[Grimm]

Yes you are young and single, but don't forget about the power of compounding interest. What you can save and invest when you are young will have a huge impact later in life when you want to quit working. I don't advocate living like a miser, but if you can get by on a small budget early on and start socking away money for retirement early, you can take it a little more easy later on when you really will be in a tighter situation finanacially if you plan to get married and have kids.

[mshu7]

Playing devil's advocate...

As I mentioned earlier, my wife & I are taking a financial class put on by Dave Ramsey. Looking at your situation, I would say no to the new car. Obviously, you're doing a lot better than most people with your situation. However, as Dave Ramsey would say, "You have to live like no one else to live like no one else." What he means is that if you sacrifice "stuff" now, you can have that stuff, and much more later. He doesn't recommend ever buying a new car unless you are so financially stable that you can afford to lose thousands of dollars of depreciation on something like that. My personal suggestion would be to keep driving your 3 after it's paid off (I have an '05 3 as well). After it's paid off, take whatever your car payment amount was and throw it into savings for a couple years. Then, you can buy a nice used car and be able to pay for it in cash or pay it off quickly. This will save you money in the long run. While it's not as fun as buying a new car, later down the road when you are financially set, you can "have your cake and eat it too."

Just food for thought.

[JustinDetail]

Originally Posted by bumoftheday

I'm at the point where I am really debating what I want to do with a car. I'm in a good financial spot, I own a house, I have no credit card debt, my current car, 05 Mazda 3 with 51k miles, will be paid off very shortly (when I get my tax return), my student loan of 2k has lower interest than my savings account, so I just pay that monthly, and I have 6 months of net pay in my savings, which I will keep if I get a new car.

I really want a new car. I'm at a stage in my life where I can get something impractical, I'm young and single with a good job with a Fortune 1000 company. Between trade equity and down payment, I could buy a nice car straight up. I want something fun. I throughly enjoy driving. I can put a smile on my face by driving, if I have something fun to drive. The 3 just isn't doing it anymore. I could easily afford the payments on a RWD luxury car, as they seem to be the only practical RWD cars.

I had made up my mind on buying a car like that, but every so often I think I could buy a Civic in cash and be practical. Is fun worth it? I will still be able to save money and will always have a positive equity on the car I want. I base my bills on worst case scenario (no OT and no outside sources of OT), and currently have a roommate and overtime(which will continue for a while) adding to that.

What to do...

I believe you were asking about cars to purchase in another thread no?

anyways, I wish I could offer some quality advice to you, but I sway back and forth the same as you sound like you're doing. I too have no cc debt, live in a house for $500/month, no other debts, make a decent salary, and could live on my savings account alone for about 18 months. I have tried the entry level car purchase twice now, once being a new 2005 Civic VP with crank windows and all, for only $11.8K new, $200 under invoice. I paid cash, got 40mpg, and used reg gas....but it was sooo boring for a enthusiast like me (and you too it sounds like). But fast forward to now, when I just bought a brand new 2007 350Z. Even at the sweet deal I got it for, I didnt want to take out of savings to put any money down, so I pay $525 a month for 5 yrs at 4.9%. Not good, but certanly not bad. That payment is 20% of what I take home a month....not sure if that's good or bad, but I still save well over $500 a month and earn decent interest on my savings.

But...here i am...contemplating selling the Z already, and doing as you said (buy a cheap, reliable commuter and save save save!). But I sure do love driving a sports car.

[Pennypacker]

Originally Posted by etml12

Penny, something to keep in mind that appears to be often overlooked is what you actually still owe on the vehicle. The vehicle may be worth 21K but if you owe nearly that much or worse yet are upside down you may not feel very unburdened. Less the fact that you could contribute the monthly payment towards other sources of debt.

Similarly, I'm startled how many people I've seen trade their vehicle in simply b/c they can get credit approval for a bigger/better/newer model. This completely undermines their ability to get ahead on their auto debt.

Thanks for the feedback.

The situation I have is: $30,000 in school loans, $12,000 owed on the car, and $18,000 in savings (not including the 401k). So I could hypothetically pay off the car and then sell it for roughly 21k and then use that, in addition to the 6k left in savings, to pay off most of my school loans. It would end up working out to a $3,000 remaining school loan balance as my only debt.

If I didn't sell it, then I would owe $24,000 (30+12-18).

One reason I'm considering doing this is that my mom's fully-paid-for '99 Corolla is sitting in the garage unused because she now lives in Scotland (and has been for the past 4 years). She mentioned she wouldn't have any problem renting a car on the occasional visit over. I could (with mom's permission) sell the Corolla instead, but I'd only get about $5,000 for it at best.

[mshu7]

I say sell the car and pay off as much debt as you possibly can. Keep $1000 in the bank as an emergency fund so that if something does come up while you're paying down your debt, you don't have to borrow (credit card) money to pay for it. Once you pay off all your debt, get your 3-6 months of expenses saved and in the bank.

[bumoftheday]

Originally Posted by mshu7

Playing devil's advocate...

As I mentioned earlier, my wife & I are taking a financial class put on by Dave Ramsey. Looking at your situation, I would say no to the new car. Obviously, you're doing a lot better than most people with your situation. However, as Dave Ramsey would say, "You have to live like no one else to live like no one else." What he means is that if you sacrifice "stuff" now, you can have that stuff, and much more later. He doesn't recommend ever buying a new car unless you are so financially stable that you can afford to lose thousands of dollars of depreciation on something like that. My personal suggestion would be to keep driving your 3 after it's paid off (I have an '05 3 as well). After it's paid off, take whatever your car payment amount was and throw it into savings for a couple years. Then, you can buy a nice used car and be able to pay for it in cash or pay it off quickly. This will save you money in the long run. While it's not as fun as buying a new car, later down the road when you are financially set, you can "have your cake and eat it too."

Just food for thought.

I've noticed your avatar on the 3 forums. I see you have an SP23 as well.

When does that situation because overkill? I've had a 401k plan since I was 18 and I contribute heavily, 16-22% of my salary total a year, depending on company profit sharing, to my 401k and build my savings relatively rapidly. My roommates rent and OT goes straight to my savings, although I have been a little bad with some of the OT and bought toys, including way too much in car detailing stuff to find the perfect shine for trade in/sale time of the 3. I may be getting a second roommate soon for a little. If I get the car, my savings will be slowed, but my 401k and 6 month net pay padding will still be there.

At what point is it worth it to enjoy it and at what point is it worth it to be smart?

[mshu7]

Yep, that's me!

Sounds like you have a good thing going with your 401k and your savings. I'm no where near a financial expert. My advice above was just based on what I had learned from our financial class. Dave's philosophy is to never have debt, not even a mortgage. Obviously, it takes a lot of hard work to have no debt and even more work to have a house that is paid off. However, it is possible (15-yr. mortgage instead of 30-yr.)

Dave Ramsey has a daily radio show (noon - 3pm) that you could call into and ask about your situation. I'm sure you could email the show as well. I think he would tell you to pay off your car, pay off your student loan, and then save save save. One of his motto's for debt is that the borrower is slave to the lender, which is the truth. His website is: DaveRamsey.com.

[yrebel7tpx]

ALL I HAVE TO SAY IS ANY ONE THAT LISTENS TO Dave Ramsey KNOWS ABOUT MONEY AND IF YOU DONT YOU BETTER GET TO KNOW HIM VERY WELL WHAT HE IS SAYING ABOUT MONEY IS WHAT LIFE IS GOING TO SO EVERY BODY BETTER GET ON HIS PLAN RIGHT AWAY BEEN ON HIS PLAN FOR 24 WEEKS AND WISH I HAVE BEEN ON IT FOR YEARS I AM ONLY 25 GOOD LUCK AND LISTEN TO HIS RADIO SHOW AT DAVE RAMSEY .COM IT IS ON EVERY DAY

LIVE LIKE NO OTHER SO ONE DAY YOU CAN LIVE LIKE NO OTHER
DAVE RAMSEY

[mshu7]

^^True.