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We have over 8K in the account because we just sold both cars. One totaled (unplanned) & cashed out, one sold to my sis (planned), plus a small profit after paying off the car loan.
We do need a car. I think we should use the $$ to pay off 1 CC in it's entirety, and another partially, and take out a car loan at 2.6%, at our local CU. The loan would be no more than 8K, the amount we plan to spend on a used car.
What do y'all think?
SteveinMN
10-12-12, 7:39pm
What is the interest rate on your credit cards? Not that I need a specific number; it just helps assess whether the 2.6% rate is a better rate than you're being charged on the credit cards.
The benefit to a low-interest-rate loan like the CU car loan is that you're not tying up all your money on one item. Spend the 8 grand on the car and you still have the CC bills and no cash from it.
Pay off the high-interest stuff first. Then lock up the credit cards :-)
rosarugosa
10-12-12, 8:47pm
Putting the cash on the higher-interest cc debt and financing the car sounds like good math to me, unless the lack of consumer debt will entice you to acquire more. It doesn't sound like you would be inclined to do that, but you would be the best judge.
awakenedsoul
10-12-12, 9:50pm
Do you have any money in an emergency fund? I would put at least $1.000. in an emergency fund, pay off the credit card, and put as much down on the car as possible. One time I bought a new small car. An uninsured driver rear ended me, totalled the car, and I owed more on the car than it was worth. Plus, I needed another car. That was a horrible lesson. I had no savings.
Congrats on selling both cars. I got my Kia used at Enterprise for $6,000. It's been an awesome car.
Pay off the high-interest stuff first. Then lock up the credit cards :-)
Exactly.
Do you have any money in an emergency fund? I would put at least $1.000. in an emergency fund, pay off the credit card, and put as much down on the car as possible. One time I bought a new small car. An uninsured driver rear ended me, totalled the car, and I owed more on the car than it was worth. Plus, I needed another car. That was a horrible lesson. I had no savings.
+1. Make sure you won't be upside down on the car, ever. Preferably at least a couple hundred bucks in the black on it, if it were to get thumped. Other than that, getting the much smaller, presumably fixed interest rate is much better than the CC. Also see what the prepayment fees are, if any, and negotiate those out just in case you can throw money at the loan faster. As for the CC, I suppose it depends on the terms of your specific case but my understanding is that they can jack the rates up if you have an issue (sometimes even with an unrelated creditor), although I believe you have the right to keep the current terms yet terminate the card at the end of its contract if you want to do that. This puts the power in their hands because they can demand higher rates in exchange for you potentially keeping the card open. When you close cards it can somewhat affect your credit score, so it's a potentially nasty game if you need to keep a high score in the near term.
rodeosweetheart
10-15-12, 12:48pm
Lots of really interesting answers to a very interesting question. I went through the Dave Ramsey FPU class and we really turned our lives around with it, so I will try to think of it from that viewpoint--I would say yes, if you don';t have the 1,000 dollar baby step 1 emergency fund, I would do that first.
Then, I would think (I'm just guessing here) that he woudl say to buy the cheapest car you can, adequate for your needs, with cash. I don;t think he would say to pay off the cc loan first, but rather to get yourself a car for cash for maybe 5000, then use the rest towards the credit card? Or in a slight variant, maybe buy a 5000 car and keep 3000 in the bank to pay for car repairs for said car and continue on with your regular program of debt reduction?
I don't think he would say to get a credit union loan for a newer car, but I might be reading it wrong. He just keeps stressing though, to sell the car and buy a new car with cash, so that is why I would go with that, personally.
But congratulations on getting out of car debt, that is awesome!
catherine
10-15-12, 1:43pm
I was going to say exactly what rodeo sweetheart said, because of my Dave Ramsey orientation. He would say that the "highest-interest" pay down makes sense from a mathematical standpoint, but not from a behavioral standpoint. The momentum to stay motivated builds on itself when you start with your lowest debt and knock that down and move on to the next.
So, I don't know how much your CCs are, I know DR would say, $1000 emergency fund; buy a $2-3000 beater car, and then use the rest to pay off the credit card with the lowest balance.
Personally, I would be tempted to keep $1000 emergency fund and then get a better used car for $7000. That's really because I've become so debt averse in my life, and being that way, I've managed to pay down over $80,000 in credit cards, cars and loans in three years.
But that's just my opinion.
I would put $1000 away for an emergency. Then I would get the best cheap car that I could get with the money remaining. If anything's left after that, I'd either put some or all of it towards the CC, or divide it between the CC and an addition to the emergency fund.
While the math does make sense to end the CC debt in exchange for a car loan at a lower interest rate, I felt tremendous peace of mind owning my car outright. I knew that it could never be repossessed, which would have literally stranded me in the desert when I was single, and later when we became a one-car family. I had an irrational fear of falling behind on my car payments, losing the car, and then being car-less and hence unable to shop or to get to any job whatsoever. I REALLY lived out in the sticks, miles away from a supermarket or any places of employment. A loan on a car is a secured loan...secured by your car! :)
Emergency fund and a basic used car applying the rest toward CC debt as others have said. A new loan makes no sense to me at all. A debt is still a debt.
Update: paid off a CC, got the 2.6% car loan, bought a used Yaris on a screaming good deal. We're very happy with the decision. And the Yaris is a great econ car. If our ECHO was any example, we'll have this car for 10 years or more.
redfox, do you mind if I ask where you got the Yaris? We've been using my mom's car during trips back home, but she's recently had an accident and is going to stop driving, so may not keep the car. We may be looking to buy something for ourselves, as rentals during the peak travel times we tend to come back are ridiculously expensive. Thought if you found a dealer who has good prices, that might be one place to start looking.
Congratulations on paying off the ccs!
lhamo
Hi Ihamo,
We got it at Brooks Biddle Suzuki. It was a trade-in; one owner from AZ. I did a massive search on cars.com, and this was the best deal! I think it was just timing, though I was also assiduous, and screened at least 4 dozen vehicles. Once I found this, I knew it was exactly what we wanted. Will PM with more info that might be helpful to you.
I'd recommend calling them and talking with Michael Enright. He's been there for 20+ years, and is calm, knowledgeable, and thorough. Please tell him I sent you! (Rebecca Lane) 800.524.3353 (tel:800.524.3353), or 425.232.9446 (tel:425.232.9446) (his cell). They are in Bothell.
catherine
10-27-12, 9:27pm
Update: paid off a CC, got the 2.6% car loan, bought a used Yaris on a screaming good deal. We're very happy with the decision. And the Yaris is a great econ car. If our ECHO was any example, we'll have this car for 10 years or more.
Yaris's are great cars--when we bought our Honda Fit we debated between the Yaris and also the Nissan Versa (they were compared together in Consumer Reports). I'm sure you'll be really happy with the Yaris. Congrats!
rodeosweetheart
10-29-12, 8:43pm
I love my Yaris, and it gets about 40 mpg. It's a great car, a great size, and everybody I know who has one is very happy with it!
awakenedsoul
11-1-12, 9:43pm
Update: paid off a CC, got the 2.6% car loan, bought a used Yaris on a screaming good deal. We're very happy with the decision. And the Yaris is a great econ car. If our ECHO was any example, we'll have this car for 10 years or more.
Congratulations! Riding my bicycle has really helped me to lower my automobile expenses. The Yaris sounds really cool.
Here's a photo of a red Yaris hatch, exactly what we got. We both love it.
https://www.google.com/search?q=red+yaris+hatchback+2007&ie=UTF-8&oe=UTF-8&hl=en&client=safari#biv=i|0;d|yHJ2bsc1Us0q5M:
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