Author Topic: Pay off the car using savings or trade it in?  (Read 2718 times)

sixkids

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Pay off the car using savings or trade it in?
« on: January 11, 2017, 10:08:10 AM »
So I found this forum based on a search.  I've read some MMM stuff over the years, but I just joined. 
I'll just throw all my details out here..  I'm 38, married with 6 kids.  Income is just under $100,000.  I currently have about $10,000 in savings, renting a house, and have two car loans, as well as about $3,000 in credit card debt.  Sadly, I'm not sure where my money goes.  That's probably a good first step, tracking that because as I tell my wife frequently, I make too much money to be this broke. 

Credit cards are paid off every month, so I don't carry balances.  I'm wondering if I should pay my car off from the savings, or continue to pay on it, or just trade it in on something newer.  It is a 2008 Chevy Impala.  70k miles on it, looks decent, runs mostly ok.  I have had to spend about $4,000 in repairs the past six months.  Steering rack, front suspension parts, transmission issue needed to have some solenoid replaced...  I'm at the point now where I am slightly concerned with its reliability and longevity.  I owe about $6200 on it.  I could take $6200 from savings and pay it off immediately.  I could also trade it in for about $5000 and buy a 2-3 year old Toyota Camry or something similar as a commuter.  We have a big vehicle that my wife drives as the family mover.  It's new, and its leased.  I'm discovering thats not a good situation, but I'm kinda stuck in it for the next couple of years.  My car is basically just used to get me to and from work.  I have a 40 mile commute, all highway except for the 1.5 mile drive from home to the on-ramp.  Because of that, I want something comfortable, and with good gas mileage.  I've considered the Camry plan, or even a used Chevy Volt.  I can charge it at work for free, and could charge it at home, too.  I would like something I can keep for 7-10 years and then either pass it to the kids as they start driving, or get rid of it. 

nereo

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Re: Pay off the car using savings or trade it in?
« Reply #1 on: January 11, 2017, 10:16:36 AM »
So I found this forum based on a search.  I've read some MMM stuff over the years, but I just joined. 
... Income is just under $100,000.  I currently have about $10,000 in savings, renting a house, and have two car loans, as well as about $3,000 in credit card debt.  Sadly, I'm not sure where my money goes.  That's probably a good first step, tracking that because as I tell my wife frequently, I make too much money to be this broke. 

Credit cards are paid off every month, so I don't carry balances.  I'm wondering if I should pay my car off from the savings, or continue to pay on it, or just trade it in on something newer.  It is a 2008 Chevy Impala.  70k miles on it, looks decent, runs mostly ok.  I have had to spend about $4,000 in repairs the past six months.  Steering rack, front suspension parts, transmission issue needed to have some solenoid replaced...  I'm at the point now where I am slightly concerned with its reliability and longevity.  I owe about $6200 on it.  I could take $6200 from savings and pay it off immediately.  I could also trade it in for about $5000 and buy a 2-3 year old Toyota Camry or something similar as a commuter.  We have a big vehicle that my wife drives as the family mover.  It's new, and its leased.  I'm discovering thats not a good situation, but I'm kinda stuck in it for the next couple of years.  My car is basically just used to get me to and from work.  I have a 40 mile commute, all highway except for the 1.5 mile drive from home to the on-ramp.  Because of that, I want something comfortable, and with good gas mileage.  I've considered the Camry plan, or even a used Chevy Volt.  I can charge it at work for free, and could charge it at home, too.  I would like something I can keep for 7-10 years and then either pass it to the kids as they start driving, or get rid of it.
First: Welcome to the site
A full case study is probably in order here based on everything you've put into this point.

AS for the cars, more information is needed, including the rates of your car loans and whether or not you are contributing to your tax-advantaged accounts.  Given that you have just $10k in savings I am guessing not. 
There's no need for oyu to get something 'newer', as there are plenty of cars circa 2008 that should be reliable, fuel efficient and inexpensive (and many are available with <80,000 miles). 
Free charging would be awesome, but you'd have to run some hard numbers to determine whether it was optimal.  I know that lately used Leafs have been going for a song.

I'm also a bit confused where you said you have "$3k in credit card debt" but that you "never carry a balance".  If you don't carry a balance than you can just lump your credit card spending with your monthly expenses - it becomes irrelevant whether you pay by cash, creque or credit card at that point.

sixkids

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Re: Pay off the car using savings or trade it in?
« Reply #2 on: January 11, 2017, 10:32:36 AM »
Thanks for the response...

Alright, so I would just include credit cards as monthly expenses.  We just use them for things likes groceries, gas, etc.  Collect the rewards, and pay them off without interest.  Wasn't sure if I needed to count them, but what you say makes sense.

My car loan is 6.9%.  I agree that it should be good.  I've also seen that Leafs tend to be very cheap, like under $10,000 for a 2015 with 20k miles..  Wifes car is a lease, so no interest rate.  2017 Chevy Traverse LT with a $360 payment.  I paid taxes and fees up front totaling about $2,000
I have about $3000 in my 401k.  Thats it.

nereo

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Re: Pay off the car using savings or trade it in?
« Reply #3 on: January 11, 2017, 10:45:00 AM »

My car loan is 6.9%.  I agree that it should be good.  I've also seen that Leafs tend to be very cheap, like under $10,000 for a 2015 with 20k miles..  Wifes car is a lease, so no interest rate.  2017 Chevy Traverse LT with a $360 payment.  I paid taxes and fees up front totaling about $2,000
I have about $3000 in my 401k.  Thats it.

Yikes, at 6.9% you need to get out from under that loan ASAP! Only downside is that you said you have just $10k in savings, which means at your spending rate you have < 2 months of cushion as an emergency fund.

I strongly recommend that you start tracking your spending.  Using programs like Mint (free!) will allow you to import the previous 6+ months of credit card expenses fairly quickly so you can see where the leaks are.  If you are brave enough, do a full case study (there are instructions on teh forum for how to do this).

Once you get out from under your car loan you can start deciding whether an electric vehicle would be a better fit.  With a 40mi commute you are likely spending a few hundred each month in fuel, eh? I'm guessing you like the Chevy Traverse b/c the whole family can fit in (six kids, right?).  Still, I'd urge you to start considering cars that are a bit older (3-5 years would be a healthy start) for future purchases. Contrary to public opinion, by going this route you actually will know MORE about the model history/reliability, and its easier to avoid a particular lemon by looking at repair history.  You don't get that when you buy/lease a late model car.

sixkids

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Re: Pay off the car using savings or trade it in?
« Reply #4 on: January 11, 2017, 11:07:56 AM »

My car loan is 6.9%.  I agree that it should be good.  I've also seen that Leafs tend to be very cheap, like under $10,000 for a 2015 with 20k miles..  Wifes car is a lease, so no interest rate.  2017 Chevy Traverse LT with a $360 payment.  I paid taxes and fees up front totaling about $2,000
I have about $3000 in my 401k.  Thats it.

Yikes, at 6.9% you need to get out from under that loan ASAP! Only downside is that you said you have just $10k in savings, which means at your spending rate you have < 2 months of cushion as an emergency fund.

I strongly recommend that you start tracking your spending.  Using programs like Mint (free!) will allow you to import the previous 6+ months of credit card expenses fairly quickly so you can see where the leaks are.  If you are brave enough, do a full case study (there are instructions on teh forum for how to do this).

Once you get out from under your car loan you can start deciding whether an electric vehicle would be a better fit.  With a 40mi commute you are likely spending a few hundred each month in fuel, eh? I'm guessing you like the Chevy Traverse b/c the whole family can fit in (six kids, right?).  Still, I'd urge you to start considering cars that are a bit older (3-5 years would be a healthy start) for future purchases. Contrary to public opinion, by going this route you actually will know MORE about the model history/reliability, and its easier to avoid a particular lemon by looking at repair history.  You don't get that when you buy/lease a late model car.

I'll check out Mint, as well as see whats involved with a case study.  Yes, I fill up about twice a week and my wife about once a week.  You're right, we like the Traverse because its one of the few 8 passenger vehicles that will fit three carseats across easily.  We've talked some prior to getting the Traverse, and I think once the lease is up, we will buy either a 2015-16 Chevy Suburban or a 12 passenger Nissan NV van and just keep it as the family hauler until the kids are grown. 
I've got the money in savings now, but I tend to get a pretty decent tax refund every year of several thousand, so I could always apply that as an option. 

overwhelmed

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nereo

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Re: Pay off the car using savings or trade it in?
« Reply #6 on: January 11, 2017, 12:05:37 PM »

I've got the money in savings now, but I tend to get a pretty decent tax refund every year of several thousand, so I could always apply that as an option.
In that case, I'd recommend the following.  File your taxes ASAP and use 100% of the return to pay off/down your 6.9% car payment. 
In the meantime use the link that overwhelmed gave and consider doing a full case study - just beware that you will get some verbal face punches (but it's all in an effort to get you on better finanical footing)
If you decide NOT to do a full case study it will still be enourmously helpful to you to track your spending and know where your money is going each month.