Author Topic: Commute Savings vs. Debt Payoff  (Read 928 times)

davecs

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Commute Savings vs. Debt Payoff
« on: April 12, 2018, 09:41:03 AM »
First, I have read every post and agree with MMM on both the Debt Emergency and Cost of Commuting philosophies and am working my way from our poor financial decisions of the past toward Mustachianism.
I wanted to hear what some of you Mustachians would do in my current situation. The dilema: I currently commute 70 miles round trip 5 days a week for work in one of the least Mustachian vehicles possible (2004 tundra with 170k miles, 15mpg). For the sake of this post, can we avoid the moving closer to work topic? It is a long story, but both my wife and I have worked in 3 different locations each in the last 3 years and moving closer to work today might be 40 miles from work next month. I have been considering getting a used civic or corolla with low miles for around $12k for the commute, which by my calculation would save me about $150 in gas per month. The reason I havenít already done so is that we are also paying off my wifeís student loan (payed off about $30k in the last 6 months thanks to bonuses and good paying jobs). There is $50k remaining on the loan at 5.5%, meaning if it sat unpaid (currently paid ahead) so that I could buy the car, it would be accruing interest at $230/month. From my perspective, continuing to pay off the loan over the remainder of the year is a better financial decision than getting the more efficient car for now (I can get the car next January when the debt is paid off), but I wanted to see if there are other perspectives on the trade offs in this situation. Thanks in advance for your opinions.

Easye418

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Re: Commute Savings vs. Debt Payoff
« Reply #1 on: April 12, 2018, 09:58:32 AM »
I think starting with getting an efficient car is probably a good idea.

Nice payback clip on the student loans, either you are living well below your means or you have really high income levels (+$200K) or both.  Just keep grinding at the student loan payments and get rid of it.    6 months is a blink.

Post a more detailed level of your current finances and you should get better responses.

It sounds like you know the answer.

4alpacas

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Re: Commute Savings vs. Debt Payoff
« Reply #2 on: April 12, 2018, 10:00:25 AM »
Why spend $12k on a new car?  Why not spend the same amount on the new car that you could get for your Tundra?  Then you're breaking even on the car cost and saving $150/month on gas.

Easye418

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Re: Commute Savings vs. Debt Payoff
« Reply #3 on: April 12, 2018, 10:04:20 AM »
Why spend $12k on a new car?  Why not spend the same amount on the new car that you could get for your Tundra?  Then you're breaking even on the car cost and saving $150/month on gas.

I assume he would sell the Tundra... I don't know why he would carry both cars. 

I think at his income level, he should have no problem handling any of this honestly, I am not quite sure why he is asking the question.

RWD

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Re: Commute Savings vs. Debt Payoff
« Reply #4 on: April 12, 2018, 10:13:49 AM »
I have been considering getting a used civic or corolla with low miles for around $12k for the commute, which by my calculation would save me about $150 in gas per month. The reason I havenít already done so is that we are also paying off my wifeís student loan [...]. There is $50k remaining on the loan at 5.5%, meaning if it sat unpaid (currently paid ahead) so that I could buy the car, it would be accruing interest at $230/month. From my perspective, continuing to pay off the loan over the remainder of the year is a better financial decision than getting the more efficient car for now (I can get the car next January when the debt is paid off), but I wanted to see if there are other perspectives on the trade offs in this situation. Thanks in advance for your opinions.

You are comparing $230/month to $150/month but that is an unfair comparison. By buying a car you are not forgoing paying off the loan in its entirety, only a portion of it ($12k). So the actual cost comparison math to be doing here is interest on $50k minus gas savings versus interest on $38k ($50k - $12k).

So buying a $12k car that saves you $150/month while paying $230/month in interest means your cost is $80/month. Keeping your current vehicle and putting the $12k towards the loan means you'll be paying $197/month in interest with the same fuel cost. This is $117/month higher than getting a more efficient vehicle! You should definitely replace the Tundra, even if that means you have to finance the new car (at a presumably reasonable rate).

I also agree that you could spend less than $12k on a car. Look at the most efficient cars you can get for less than $10k (hint, it's probably a Prius).

davecs

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Re: Commute Savings vs. Debt Payoff
« Reply #5 on: April 12, 2018, 10:22:33 AM »
I donít want to get rid of the tundra because I do use it to haul a trailer about 10weekends throughout the summer (property maintenance, living in the mountains) and itís great for camping which we do 5-10times per year with our 3 dogs. If it were worth more, I would sell it, but I believe it would only fetch around $7k. So, the way I see it, I could sell it now and trade even for a car, but Iím unlikely to be able to replace the truck in the future for that same $7k or anywhere close. I will probably get plenty of flack for not wanting to sell a truck, but I believe itís value to me is more than I would get from selling it. Itís also been in a bad wreck, so wouldnít be easy to sell.

As for more financial info, youíre right, we do have high incomes (recently doubled my salary, putting us close to $300k total comp before tax, and although we still have plenty of room for efficiency, we are currently saving/paying down debt at about 65% of our take-home. Like, I said, still working to get that higher. Currently have a 3year old mortgage with $330k remaining (next target after student loans paid off).

davecs

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Re: Commute Savings vs. Debt Payoff
« Reply #6 on: April 12, 2018, 10:28:05 AM »
I have been considering getting a used civic or corolla with low miles for around $12k for the commute, which by my calculation would save me about $150 in gas per month. The reason I havenít already done so is that we are also paying off my wifeís student loan [...]. There is $50k remaining on the loan at 5.5%, meaning if it sat unpaid (currently paid ahead) so that I could buy the car, it would be accruing interest at $230/month. From my perspective, continuing to pay off the loan over the remainder of the year is a better financial decision than getting the more efficient car for now (I can get the car next January when the debt is paid off), but I wanted to see if there are other perspectives on the trade offs in this situation. Thanks in advance for your opinions.

You are comparing $230/month to $150/month but that is an unfair comparison. By buying a car you are not forgoing paying off the loan in its entirety, only a portion of it ($12k). So the actual cost comparison math to be doing here is interest on $50k minus gas savings versus interest on $38k ($50k - $12k).

So buying a $12k car that saves you $150/month while paying $230/month in interest means your cost is $80/month. Keeping your current vehicle and putting the $12k towards the loan means you'll be paying $197/month in interest with the same fuel cost. This is $117/month higher than getting a more efficient vehicle! You should definitely replace the Tundra, even if that means you have to finance the new car (at a presumably reasonable rate).

I also agree that you could spend less than $12k on a car. Look at the most efficient cars you can get for less than $10k (hint, it's probably a Prius).

Thank you, this is the math I was looking for. Iíve had my eye on Craigslist cars for over a month and there are cars for less than $10k, but if they are quality brands (Toyota, Honda), they typically have close to 100k miles, which isnít terrible for a good quality vehicle, but I was hoping to get something with closer to 50k miles. Wouldnít mind hearing othersí thoughts on this. I live in the Denver area.

RWD

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Re: Commute Savings vs. Debt Payoff
« Reply #7 on: April 12, 2018, 10:42:15 AM »
I donít want to get rid of the tundra because I do use it to haul a trailer about 10weekends throughout the summer (property maintenance, living in the mountains) and itís great for camping which we do 5-10times per year with our 3 dogs. If it were worth more, I would sell it, but I believe it would only fetch around $7k. So, the way I see it, I could sell it now and trade even for a car, but Iím unlikely to be able to replace the truck in the future for that same $7k or anywhere close. I will probably get plenty of flack for not wanting to sell a truck, but I believe itís value to me is more than I would get from selling it. Itís also been in a bad wreck, so wouldnít be easy to sell.

Ah, I misunderstood your original post. I thought you were intending to replace the Tundra with an efficient commuter, not add to your fleet. I still think buying a separate commuter and keeping the Tundra is cheaper than continuing to drive the Tundra.

But let's consider another angle too (because math is fun). You use the Tundra 20 times per year. It's probably costing you $2k/year in insurance, depreciation, maintenance/repairs, and opportunity cost whether you drive it or not. So that brings your per trip fixed costs to about $100. Can you rent a pickup/SUV instead for these trips for less than this? I'm assuming not, but it's worth thinking about, especially if garage/parking space is limited.


Thank you, this is the math I was looking for. Iíve had my eye on Craigslist cars for over a month and there are cars for less than $10k, but if they are quality brands (Toyota, Honda), they typically have close to 100k miles, which isnít terrible for a good quality vehicle, but I was hoping to get something with closer to 50k miles. Wouldnít mind hearing othersí thoughts on this. I live in the Denver area.

No problem. 100k on modern Japanese vehicles is nothing to be worried about. But with how much you drive I can see why you'd like to start with something than has less miles. At your income level this is just quibbling really. Best to focus on fuel economy in your scenario.

neil

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Re: Commute Savings vs. Debt Payoff
« Reply #8 on: April 12, 2018, 11:33:45 AM »
You would be adding fixed costs if you keep your current car as well.  How is insurance affected?  Depreciation?  Is there any additional benefit (lower maintenance?) to consider?  I haven't made any attempt to do numbers, but my gut feeling is the carrying cost of additional vehicles is not offsetting incremental cost/mi, unless you downgrade to beater status with good mpg (some 90s-era cars work.)

But, this debt is not a forever thing either.  Seems like you're already paying off 5K/mo; the debt is gone in 9 months.  Adding the car extends it to 11 months (assuming payoff).  Honestly, you can do the car or not financially; I don't think 20 years from now you will recognize any significant benefit.  Do you expect another vehicle to be part of your equation long term?  I certainly wouldn't fuss with a vehicle for a year and then sell it.

If you do want another more efficient car but are setting for one in this range because that is all you feel financially justifying with the student loan in play, I would just drive your current one for sure.