I drive a 1998 Ford Escort Cpe - no troubles ever. It gets routine maintenance and it runs fine. Keeping my fingers crossed it will last a while longer - it has 109,000 miles on it. By Jan, I hope to have enough to buy a new used car for cash. If it still runs fine by then, I'll be happy to drive it into the ground.
The second I don't feel safe in it anymore - it will be gone.
Mr. R. drives a 2015 Subaru Forester. We made a good size down payment and financed at 0%. We are happy with our little tank:) Next month I am canceling the GAP Insurance on it - it served its purpose. He has a long drive to work and his old Pick-Up was becoming unreliable and unsafe.
We were in a similar situation as you but no cc debts, yet not enough cash for a new car. We never touch our 401K or our mini portfolio, we did for home improvements, once.
I think you are way past the safety margin for her rust bucket, I'd be tempted to let it roll off a cliff and blame it on the brakes:) Let her pick the car she wants, but based on the response in this thread I'd say have another look around first. There are lots of fun cars out there - good luck in finding a great deal:)