Author Topic: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?  (Read 1460 times)

brit.hawk

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Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« on: November 04, 2016, 08:15:51 AM »
Hello everyone, I'm new to these forums, and I need some advice. I made a stupid decision, in my opinion, and I am looking to fix it.

Two years ago my paid for '04 Toyota Camry completely died (the repairs were going to cost way more than the car was worth.) We did not have enough savings to fix that car or buy another car for cash at the time, so our only option, I thought, was to finance a car, which I never wanted to have to do. I work full-time at a company an hour away from my house, so constantly borrowing someone's car or having someone drive me to and back from work was not an option, since it would have taken a long time for us to save up cash for a car.

Since I like getting things done fast and didn't want to burden anyone with driving me to work or me borrowing their car for long term, I made a hasty decision and found an '09 Toyota Camry (what I deemed to be a "reliable" car) that we financed for $9,415 (a 5-year loan). The monthly payments are about $185. To this day, we still owe $6,470 and the car is worth about $5,700 if we sold it privately.

I am tired of debt. I especially dislike the car debt. I am disgusted that we had to finance one, but we simply did not have the money to buy one with cash. I also made the stupid decision of financing a car for $9,415. I was in the mindset of "if I'm going to have to finance one, then I might as well get one I know won't break down on me since I drive so far everyday."

With the background that I want to get out of this debt very badly, but I'm looking to make the best financial decision with what we have at this moment, my question is: Should we buckle down and pay off this car OR should we save up a few thousand to sell it, pay off the loan, and then turn around and buy a $2,000 car with cash?

Add this to the equation: I am looking to get pregnant within the next year, since we have been married for 5 years and have waited long enough for that. Do I need to stick with this '09 Camry for reliability purposes or should I buy an older car?

I can't seem to decide what would be best and just need an outside opinion to help us out. We long to be debt free, and are wanting to be out of as much debt as possible before we have a baby. I'm just looking for a "what you would do in this situation" kind of answer. Please let me know if you need more information about our finances.

Thanks!

frugaliknowit

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #1 on: November 04, 2016, 08:26:37 AM »
What is the interest rate on the auto loan?
How much cash do you and hubby have with emergency fund (if any)?
At what rate are you able to increase your cash balances with the current loan on the books?
What other debts do you and hubby have?  What are the interest rates on each one, if any?
Rent or own?  Payment on home or rent?
Could you and or hubby reduce retirement contributions temporarily to build cash?  If so, is there an employer match, if so, how much?

Proud Foot

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #2 on: November 04, 2016, 08:54:29 AM »
In addition to frugaliknowit's questions:

Remove the loan and how do you feel about the car?
Since you're driving 2 hours each day for work, would you feel comfortable putting those miles on a $2k car?
What is your husbands commute?
And if you got a $2k car, could he drive that and you drive his current vehicle if you aren't comfortable putting those miles on a $2k car?

brit.hawk

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #3 on: November 04, 2016, 09:08:44 AM »
frugaliknowit:

- Interest Rate of Auto Loan: 5.890 %

- Emergency Fund Cash: $42.72 (...I know. All of our extra money has been going toward paying off credit card debt that incurred after we bought our house earlier this year since that drained all the savings we had, and as we all know, life likes to slap you in the face with constant expenses)

- **At what rate are you able to increase your cash balances with the current loan on the books?** <-- I don't fully understand your question, but if you are asking how much "extra" money we have per month that doesn't necessarily have to go toward bills or loans, it ranges from $600-800. Like I said, most of that has been going toward paying extra on our credit cards to beat the interest, or paying for miscellaneous things that come up (and add up fast!)

- Other Debts we have: Credit Card - $1,600 (23.24% APR), Student Loan - $24,593.03 (4.6-6.8%)

- Own our home, just bought this year: $1250/m (We bought a home so we could stop throwing money away every month to something we don't own. We rented for 4 years. I wish the payment wasn't that much, but we purchased a home with 3 acres so we could start a homestead to start producing our own food to cut down on those expenses.)

-Retirement Contributions: We have already reduced our retirement to almost nothing for about 2-3 years of our 5 year marriage (and we were able to pay off one of my student loans ($6,000 worth), buy his vehicle with cash ($3,000), pay off consumer debt ($2,500) in the past, so we can not afford (for the sake of our future) to reduce our retirement much anymore. With that being said, we now have my husbands set to about 4%, with the employer contributing a 2% match. I am only able to contribute $100/m right now (It has been that way for quite a while on average, and I am almost 30, so I need to be contributing WAY more than that per month). That's one of the reasons we are trying to get out of all this debt: So we can start building wealth.


I know we have made some questionable decisions in the past, but deep down we desire to live frugally and debt free and are trying to fix our mistakes to get us on the right path.

brit.hawk

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #4 on: November 04, 2016, 09:13:25 AM »
Proud Foot:
- I am not in love with the car. If I had the money, I would buy a Prius a couple years old for gas mileage purposes :)
- I don't feel comfortable putting those miles on a $2k car
- My husband's work is about 20 minutes away
- My husband just bought a $2,000 truck (he needs it now to haul things). He just sold his Xterra for $2,500. The other $500 has to replace the tires on this new truck. So we would basically both have $2,000 cars then.

brit.hawk

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #5 on: November 04, 2016, 11:18:42 AM »
With all of that information above, do you recommend we just buckle down and pay off my '09 Camry and keep it for a while?

I was just trying to figure out a way to "fix" that mistake of financing $9,000... We have and are continuing to waste so much money on that decision with interest and all fees associated with financing, and the car is only worth $5,700 right now. At this point, I feel we may just need to focus on paying it off quickly, with the fact in mind that I travel so many miles per week for work and an older car just wouldn't cut it.

I am so adamant on not making a terrible decision again, that I just need a second opinion. I don't want to cost us more money :)

arrintonpalmer

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #6 on: November 04, 2016, 11:38:50 AM »
I would sell it, and buy a similar year but more efficient car.  Especially if you are not going to do anything about that commute.

We have a 2009 Yaris that is just as reliable as your Camry but much more efficient, and of course MMM would recommend a Scion!

frugaliknowit

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #7 on: November 04, 2016, 11:42:37 AM »
With the information you provided, I would in order:

1.  You and spouse get on a detailed monthly budget.  You're not going on vacation and if you're in a restaurant, it's because you work there.  Brown bag lunches, no unnecessary spending of any kind.  Your hair needs to be on fire!
2.  Make an effort to find a job closer.
3.  Stop all unmatched retirement savings.
4.  Build a $1,000 Emergency fund.

Payoff as follows:

1.  Credit card.
2.  Keep car and pay it off
3.  Student loan
4.  Build an appropriate emergency fund
5.  Begin/resume investing.
« Last Edit: November 04, 2016, 11:44:14 AM by frugaliknowit »

brit.hawk

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #8 on: November 04, 2016, 01:38:10 PM »
Thanks for the input, everyone!

-
With the information you provided, I would in order:

1.  You and spouse get on a detailed monthly budget.  You're not going on vacation and if you're in a restaurant, it's because you work there.  Brown bag lunches, no unnecessary spending of any kind.  Your hair needs to be on fire!
2.  Make an effort to find a job closer.
3.  Stop all unmatched retirement savings.
4.  Build a $1,000 Emergency fund.

Payoff as follows:

1.  Credit card.
2.  Keep car and pay it off
3.  Student loan
4.  Build an appropriate emergency fund
5.  Begin/resume investing.

- Yes, we are on a detailed monthly budget and have been since we got married. We were almost to the poverty level, I think, when we got married, ha! My husband had lost his job and I was still in college, so we didn't have much of a head start with our finances there 5 years ago :) We haven't been on a vacation since our honey moon 5 years ago and we rarely eat in a restaurant. We take our lunch to work and spend $100/week on food/groceries (We have found that is the sweet spot for us.) We have had a few times here and there where we are will go out and spend alot more that usual (it's basically for sanity, since we are so strict with our budget most of the time), but we are generally not big spenders, and only spend on things of necessity or invest in things we can do at home that will bring in more income for us. We have known about Dave Ramsey since we were married but have gotten discouraged a lot from the financial blows life has dealt at times and gotten on and off his plan on a strict basis.

- My job is wonderful and now-a-days are allowing me to work from home 2 days a week, so that I am driving 3 days a week. I love the company and what I do there, and they pay our health insurance in full. They will be a great company to work with when we have kids. However, I do eventually want to find a job closer. It is not on my active radar at the moment, though, due to the reasons I just stated.

- I agree with stopping all unmatched retirement savings, but I am afraid to do that any longer, since we have already gone that route with the Dave Ramsey plan for a few years (which we did make progress from), but our retirement savings are pitiful, in my opinion, for our age (we're almost 30). I will have to think more about this one.

- Yes, we have been trying since we bought the house in April to rebuild our $1000 Emergency Fund, but things have constantly come up (this breaks, that breaks, lawn mower purchase for 3 acre yard, vet bills, car alternator, car battery, etc...). Now that we have finally made significant progress on paying down the high interest credit cards before they completely drowned us, we can start inching toward that Emergency Fund goal again. We have some music equipment that we are selling that is helping pay down the credit cards.

I'm afraid it will take up to 5 years to finish off the student loans and we can't wait that long to have our retirement contributions on hold, so like I said above, I'll have to think some more on that one. If we were to do that again and wait until the student loans are paid off, then all together, it would basically mean we would have spent 8-10 years of us not contributing properly to retirement. That's unacceptable to me.

I think we'll just attempt to pay off this car as quickly as possible as soon as we can get our credit card mess taken care of in full.

Thank you all for your responses and advice!

frugaliknowit

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #9 on: November 04, 2016, 02:03:02 PM »
With SLs at 4.6 - 6.8% which is a GUARANTEED return, I would not choose retirement savings over the SLs.  If it will take you 5 years to be debt free, you need to do a combinatin of increasing income/cutting expenses.  Good Luck!

brit.hawk

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #10 on: November 04, 2016, 02:13:21 PM »
With SLs at 4.6 - 6.8% which is a GUARANTEED return, I would not choose retirement savings over the SLs.  If it will take you 5 years to be debt free, you need to do a combinatin of increasing income/cutting expenses.  Good Luck!

That does make sense about retirement vs SLs! I will talk it over with hubby. Thank you so much!

Kapiira

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #11 on: November 04, 2016, 02:26:42 PM »
It sounds like you guys are making good progress so far!  Don't get discouraged.  I know that you are anxious increase your retirement savings and pay down your debts, but it's in the best interest of your long-term savings to prioritize a $1000 emergency account.

Also, since you're planning on getting pregnant in the next year, make sure you've done a little bit of homework regarding the cost of daycare and look at how that will impact your budget.  If you're going to pay down debt I'd focus on the ones that will increase your cash flow. Pick one that you can get paid off before the baby comes along.

brit.hawk

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #12 on: November 04, 2016, 06:37:42 PM »
It sounds like you guys are making good progress so far!  Don't get discouraged.  I know that you are anxious increase your retirement savings and pay down your debts, but it's in the best interest of your long-term savings to prioritize a $1000 emergency account.

Also, since you're planning on getting pregnant in the next year, make sure you've done a little bit of homework regarding the cost of daycare and look at how that will impact your budget.  If you're going to pay down debt I'd focus on the ones that will increase your cash flow. Pick one that you can get paid off before the baby comes along.

Thank you! It sure does help to hear the encouragement on our progress :) Yep, we've looked at all the different variables that will impact our budget, and that's why I'm hoping to kick as much debt as possible before kids come along. But, we can't wait forever to have kids, so we will do what we can!

Kapiira

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Re: Pay Off my Financed Car or Sell to buy Cheaper Car with Cash?
« Reply #13 on: November 05, 2016, 10:50:59 AM »
Also, I didn't realize until recently that you can take the principle out of your Roth IRA penalty-free.  You can use deposits to that as an emergency savings account.