Earlier this week, April wrote with a personal finance predicament. She and her husband need to buy a car, but it’s not something they’d budgeted to do any time soon. Fate intervened:
My husband and I are trying to pay down our debt and to save money. This morning he called to tell me that he had been rear-ended in traffic. He’s fine, thankfully, but he thinks they’ll total his car, which was paid for. My best guess is that they’ll give us $4000. I don’t want another car payment, but I’m not sure what to do here.
The payments on my car are $240, and we have two years left. We pay $1013 for the lot we own [on which they plan to build a home --j.d.], and $200 for his motorcycle, which we’re trying to sell (keeping the bike isn’t an option). The rest goes toward the normal bills and paying off the credit card, which we have about $8000 left on. We don’t pay rent right now, don’t have cable, and we’re cutting back everywhere possible. Our two luxuries are Netflix and high-speed Internet.
What’s our best option?
- Should we buy something a little more than the expected $4000 settlement and finance the rest?
- Should we try to make it on one car and put the money toward the debt?
- Something in between?
My husband absolutely has to have a car because he makes sales calls all day long. I carpool to work and don’t drive, but on occasion I need to take my own vehicle. Maybe we could make other arrangements on those days, but it’s hard to account for any circumstance that could come up. I want to be really smart about the choice we make, because I don’t want to derail all of our hard work. We really want this to be the year that we get our finances in order.
April adds that because of where they live, biking to work isn’t an option, and neither is public transportation. Her choice seems to be: remain a two-car family for convenience, or make a go with one car while tackling the last of the debt.
Often I don’t have a strong opinion about reader questions, but this time I know exactly what I’d do if I were in April’s situation. I’d defer the decision. I would take the money, place it in savings, and try to get by with just one car for a few weeks. If this worked well, I’d pay down the debt. If there were problems, I’d buy a car.
I actually experienced something similar several years ago. In December 2000, a tractor-trailer rig sideswiped my beloved Geo Storm during the morning commute on the freeway. My car was totaled.
I didn’t have an emergency fund and was already deep in debt. But the car was paid off. The insurance company gave me $2000 for it. Rather than make the smart move — buy a used car — I borrowed $15,000 to purchase a brand new Ford Focus, the car I’m still driving today. That choice prolonged my life in debt.
April’s situation is slightly different, of course. I had to buy a car; she and her husband have the option of using the money to pay off debt instead. But is that the best choice?
Have you had to make the choice between buying a car or paying off debt? Which did you choose and why? (Or, to look at the question from a different angle, have you ever opted not to have a car in order to avoid debt?) What would you do if you were in April’s shoes?
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I like your idea of deferment. I think that I would try to make the one-car household work. If you can get by without a second car, you’re much better for it. (Think of the savings all around with insurance, gas and maintenance)
Either that or buy April a junker and give husband whatever she drives.
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Try for one car! If you live in a city, on those days when you REALLY need a second car, look into flexcar arrangements (which are even hitting my part of the midwest now), a rental, or a taxi – I bet it’ll come up less often than you expect, and it’s amazing how often you can do this and still come out ahead compared to actual car payments + insurance + maintenance etc…!
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I agree with you JD — since April doesn’t need the 2nd car immediately, I’d put the money into savings.
Then, I’d both put out the word that they’re looking for an inexpensive-but-reliable used car, and put the money into savings. They’re more likely to encounter a real bargain through friends than at a used car dealership. Then, for the next few weeks, she’ll figure out how much she’d need the 2nd car.
Then one of two things will probably happen:
– She’ll figure out that it’s worth the $4000+ in savings to deal with the hassles of not having a second car.
– She’ll figure out that she really needs the 2nd car, and get a deal on one through her contacts, hopefully for under $4000.
One more point — the longer she holds out on buying the 2nd car, the more money she can apply to debt. Even having the darn thing sitting in the driveway costs money: insurance, taxes, maintenance, etc.
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I agree with J.D. about deferring the decision. Also, if there is going to be any profit in selling the motorcycle, I would try really hard to get it sold and apply the excess to the car fund.
The real thing though is that I get the impression that the wife hardly ever drives. Why not buy an older used car for less than $4000 to get by until the debt is gone?
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I am about to oversimplify this but this may work:
Scenario One (pay debt): Interest rate on your current car loan and what you spend on gas per month now.
Scenario Two (new car): Interest rate would be on the new car loan (add that to the interest rate of your current debt). What you would spend on gas per month.
I’m know I’m overly simplifying this but what ends up being more money? I think getting a few numbers on paper may make things a little clearer.
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I’m probably the wrong one to ask considering I drive a 1991 work van with 207,000 miles and zero options. I view transportation as strictly a practical matter and could easily take the money and go buy a $1,000 garage sale car, and use the remaining $3k to pay down debt.
Good move having the motorcycle up for sale!
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In my experience it’s very stunting and anti-productive to try to account for every circumstance that may – or may not – come up. Deal with them when the time comes; you will find appropriate alternatives at that point in time.
I believe you can certainly make a one-car household work – we do it, and I’m not sure how, but we get by fine!
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I would recommended buying a Volvo 240 DL for about $1500.00 (use $500.00 for tax, title, insurance and your first tank of gas) and then put the other $2000.00 towards debt. You definitely don’t need another car payment and these vehicles are low maint , good on gas and run forever. I got one so I could save to buy a house and have loved not having any payments. Plus the wagons have great hauling capacity and room for wet dogs without tearing up anything you REALLY care about. You can usually find a well maintained one on craigslist. These cars have a kind of classic appeal and their owners usually take good care of them. Good luck!!
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I would say either put the money into savings or buy a crappy car worth $4000 or less. I wouldn’t take on more debt when you are still paying off a car loan for a car you no longer have. Pay off your debt first, then when you have saved enough buy a new car out of your own money.
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I agree with deferring the decision. If they find they really have to have a second car then hubby should drive her car and they can buy an inexpensive (less than $4000) used car for her to drive the limited amount she claims that she drives. They can do this without taking on a new car payment at the very least…
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I found myself in a similar situation in my 2nd year of grad school. I needed a car but had no income and was living on student loans. I bought a 10-year old, low mileage, $3,000 car off Craigslist. It’s still going strong two years later, and I’ve had no problems with it. My thinking was that cars are made pretty well nowadays and should last 10+ years and 100k+ miles. Of course there are a lot of cosmetic issues with it, but it goes, and I’ll be able to buy a better used car when I start working in the fall.
Also, I’d probably still be able to sell it for $500-$1,000 so it will have cost me about 2 grand to drive it for over two years – about $56 a month. Plus insurance is super cheap.
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I agree with JD and LM. They should try out life with just the one car. Two months should be enough to tell if it’ll work out. If it does, they just halved their credit card debt. Or just gave themselves a sizable emergency fund for later.
If it doesn’t, then give the husband the existing car and buy a used one for her. If she doesn’t use a car much anyway, then there’s no need to go in more debt over it. I’m sure you can find a used car below $4,000 that can get around town. Research what the most reliable used cars are and buy one on the cheap. The goal is to get something that’ll last until they can afford a new car without crippling their finances.
I currently own a 97 grand prix (valued at around $3,000-$3,500, great cars btw). She’s getting old (11yrs and 212k miles old), but her engine is still in good shape. I know I need to get a newer car soon, but for a grand or two in maintenance I can get between 50k-100k more miles out of her. Which gives me more time to save up for a newer, better car. Some people think I should take the two grand I have now for a down payment on a better car, but in the long run this is the better option because I’ll have more money saved 50k miles from now and less debt.
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Why change anything at all? I know the insurance company “totaled” the car…so what? Just talk to a local body shop (not the dealer) and ask for an estimate, then chat with your insurance adjuster. The adjuster is likely just trying to do the right thing by “totaling” it and giving you as much as possible. You mentioned that the car was rear ended…if the frame’s not bent, new panels may not cost that much, and the only other thing would be the exhaust, which is *fairly* cheap to replace (even cheaper with used parts).
I’d just repair the car and move on. If $4k isn’t enough for the repair, ask around…ask for used replacement parts. It can be done cheaply and relatively quickly without disrupting their plans.
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My wife and I had been married for six years and had four children before we decided we needed a second car. Based on what you say in your post, you absolutely can make it on one car. With the money you save on insurance and taxes (not to mention car payment) you can put aside enough for cab fare or to rent a car on the rare occasions when it’s necessary.
If you DO get a car, I wouldn’t pay more than 6 or 7 grand for it – if you’re trying to get ahead financially, your cars will show it! – and I would save the money first and pay cash. If you buy through a dealer, you can usually negotiate a better deal if you aren’t financing, anyway.
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I would look at it this way. Start off with assuming you dont need two cars. Also assume you dont have the $4000.
1) Figure out what your long term goals are and appropriately place the purchase of another car (new or used) in to those plans.
Figure out what that date is?
2) Ok now really thoughtfully think about how many days a year you actually need a second car? So how many days is that between now and the date where you can responsibly afford that new/used car you figured in step 1?
3) Ok now based on that you can calculate several debt scenarios…
3a) $4000 car = $4000 + insurance + maintenance (could be high) + gas
3b) More than a $4000 car = $4000 + financed amount + interest + insurance + maintenance (might…only might be lower) + gas
3c) No second car = Carpool (mostly free?) + (rental car + gas) + taxi – insurance – maintenance – gas – $4000
In the last scenario you get the nice bonus of also deducting whatever you currently pay in insurance, maintenance, and gas on the current car. Plus you’ll have $4000 to start your transportation fund.
Obviously it’s very inconvenient to not have the second car, but it’s also very inconvenient and stressful to pile up debt.
You really have to think hard about what your most important financial goals are and stay true to them.
Lastly, a car is never an investment as all it does is depreciate. You might say to yourself “but scenario 3c) leaves me with nothing of value at the end”. But really neither do the other two and you pay a lot more out of pocket.
In the end be confident in your decision and you’ll reap the benefits of financial freedom!
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I’d opt for putting the money into an emergency fund and try to live with only one car for awhile. If having one car doesn’t work out, they are in the perfect situation for finding a good used car for $4,000.00. Car lots are overflowing with cars. The trick will be to find one that’s economical over the long haul.
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I know the article said that keeping the motorcycle isn’t an option, but it didn’t really say why. As long as it isn’t falling apart, I’d consider the option of keeping the motorcycle and using it for transportation in place of the car that was damaged. The way I see it before the accident they had three vehicles and needed two. Now that the car totaled they’re down to two vehicles. Sure a motorcycle doesn’t work for everything (groceries might be a problem), but it will get you to and from work.
Kudos for trying to sell the motorcycle before. Now that the accident has happened maybe you should consider keeping it.
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I am a self-professed car nut. And should they decide they need two cars, it is possible to get a decent car on craigslist for less than $4000. Most of the time, the ones that you find for cheap are even fun (example: there is a 1989 bmw 325e on my city’s craigslist listing that runs and is only $1000). With a little perseverance (and daily checking of listings), you can probably find something cheap, fun, AND reliable that doesn’t eat you up with insurance either. Hope that helps!
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My dad’s car was “totaled” a few years back. He did get it fixed and still drives it. You can’t get comprehensive insurance again – just liability – but it works fine for him.
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Eh. Let’s look at something else in this situation: I’m a little mystified by the heavy debt compounded by an unpaid-for plot of land on which they plan to add more debt to build a brand-spankin’-new-house. They’re (apparently) living at their parents to make ends meet. Should we be concentrating so much on the $70/month loan they would need to help bridge the gap on a car? Are we ignoring the mastodon in the room?
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While I agree with JD on delaying making the decision, isn’t there another option? Can’t they take the payout ($4000) and buy a used car, not having to take on an extra payment. You should be able to get a pretty decent used car for $4000 and then they would be in the same position they were in pre-accident.
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They absolutely should not buy a better car and go further in debt. Live on one car and use the $4k to start their emergency fund. Use the remainder to pay down debt.
If they keep the money “just in case” they need to buy a car they won’t find a creative solution. The easy way out will keep popping up.
They mention both have jobs. What else are they doing? Are they working a second job? This would accelerate the debt repayment and possibly justify (and pay for) a beater second car. Pizza delivery pays well and is flexible. Same with lawn care work. I have a friend who started a lawn care service for college beer money. It paid so well he never shut it down and now makes a killing.
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You know what kills me, when I was a poor college graduate, my car was a crappy old station wagon held together by duct tape, bubblegum, and alot of hoping. It was 20 years old and barely ran, but at least I didn’t have a car payment. A guy pulls out in front of me, totally his fault, his insurance company totals my car, gives me a whopping $700 and I’m supposed to somehow get another car for that.
It should be on the insurance company to get you into a suitable replacement. It shouldn’t go by the blue book value, because a running car, no matter what condition could be worth more than that value to you. In other words, there should be a formula that accounts for more than just depreciation. I’m not saying they should have bought me a brand new car, but they should at least be responsible for getting me an equal or better replacement such that I don’t have to pay for a mistake someone else made. In my case, the next cheapest car available to me at the time was I think something like $6000, which I ended up getting a loan for.
This wouldn’t cost the insurance companies a dime either, because they would make up for it by increasing the insurance premiums of the guy who’s fault it was, something they’ll do anyway.
OK, done ranting now.
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I wouldn’t go into further debt, and I wouldn’t plan on saving the money long-term. If you actively search for cars on you way to the supermarket I would see if they have any old ones for sale. Personally, I would never spend more than a couple thousand dollars on a car. I’d rather buy an old clunker and fix it up. You save lots of money that way.
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I bought a new Mazda Protege in 1997 and planned to have it until it didn’t run anymore. Unfortunately, it was totalled in 2006 and I had to look for a new car. I wanted something similar (actually, I wanted the exact same car, but used Protege’s are hard to find), so got a used Honda Civic. That was right around the time I was starting to get to know someone new. He’s now my fiance, and happens to work an hour away from the house he’s going to live in with me. If it could’ve been timed just a little differently, I’d have spent some extra money and gotten a hybrid, because his commute is so long.
I’ve debated about selling my current car (which he’s going to commute with) and getting a hybrid, but from my calculations, what I’d be saving in gas down the road would just get spent up front on the higher vehicle price. And with combining our finances and my job being a little rocky, I don’t want to incur that expense up front. I shy away from vehicle financing these days … though it’s possible it could make it easier to get the hybrid. I haven’t looked at interest rates for it lately.
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Absolutely defer the decision. Try living with one car for a few months to see if you can handle it. I convinced my spouse that we could live with only 1 car when we had been living with two, so we traded in both for a more expensive newer car. I was fine for the first month or so, but then I was miserable. Sharing a car works for some couples… but not for others. It was too hard for us. Ten months later, we ended up buying a second car. So where we previously had two paid-off cars, we now have two car loans. We’re chalking this one up to “live and learn.”
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Only car was totaled after a deer strike $3500. Bought car back and had essential repairs done $800. Car only has cosmetic damage, but is perfectly drivable, leaving $2300 in the bank, a nice head start on the next vehicle someday. So if that rear end collision vehicle is still drivable, or could be for a fraction of the settlement, repair it, drive it, bank the rest for your next car/emergency fund.
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Don’t buy a Hybrid if your goal is simply to save money. Buy an economy-size car, which will be much cheaper to begin with, and learn to “hypermile” (Google it) to give you better mileage.
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I agree with the others who say to look into buying the totaled car and fix it up with the money. I had a coworker who was driving a 1992 Plymouth Sundance. He got into a wreck, the car was totaled, and he bought it back, did the bare minimum to get it running again, and drove it for another year.
I’m guessing you can probably get the car running again for less than 4 grand, and you know the car’s history.
If that isn’t an option, do this. Tally up how often you’ve actually needed a car in the last month, then calculate what it would cost to rent a car those days. Does that cost more than buying another car? If not, then get friendly with the nearest car rental place.
If it turns out you DO have to buy something, I certainly wouldn’t spend the full $4,000 on a car. Buy something reasonably reliable and inexpensive for less than $4,000 and use the balance to pay down debt. Then upgrade once you can afford to do so. Search Craigslist, as others have mentioned, but also look in the newspapers–only not in the car section. Look in the ESTATE SALE section. Estate sales are often a good source of quality, low mileage cars (the proverbial car driven by a little old lady only to church and the grocery store) and the sellers are motivated so prices tend to be good.
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Texas is not a place where one can easily get by without a vehicle, and I was in a similar position late last year.
We had a $400 (that’s best case) beater that bit the dust. I only work about 5 miles from home, so a nice vehicle wasn’t a MUST. I began looking for a good $1,000-$2,000 car, since my first car only cost me $750, and I thought I’d need to account for inflation. Apparently, such a car exists only for the repair shop, or my tastes have changed. I couldn’t find anything for under $5,000 that I wanted and I didn’t even have that much money. Of course, finance terms on a decent $6,000 car was running very short term, so my payments were sky-high. If any repairs came due, we would be toast. Instead, I opted for a $10,000 truck that will be useful for many years, still had a 3 months of factory warranty on it, and, by all looks at it, appears to be a decent running vehicle. It did put us further in debt than I wanted, but, at the same time, we shouldn’t have to worry about major repairs to either vehicle for quite some time.
If I had it to do all over again, I don’t know that I’d do anything any different, but, at the same time, I don’t know that I made the right decision. That’s a hard one.
Quite possibly the right answer for April, specifically, lies in the above comments… if the $4k is put to the side for a while, and the couple attempts to get by with one car, in the meantime, paying the minimums on all other debt, and continuing to add money to the “car fund”, they should be able to put away a decent amount… especially considering the savings that not paying for gas and insurance on the second vehicle will get them. Then, if they determine that the second vehicle is needed, they will have saved up some extra for that, and, if not, they can slam over half their credit card debt in one fell swoop.
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I think that, given that you are doubting a car purchase, you already really know the right answer but are too scared to face the change.
As long as you have debts, everything that you buy costs you the equivalent of the interest that you do not pay of on your existing debts.
Use the money to half your credit card debt then focus on paying that off before you take on any other debt.
It sound like you are really focused and determined to clear your debt and increasing your debt right now with something that is a liability (not even an asset) will be suicide.
I’m sure you’ll survive with 1 car.
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My wife and I were in a similar situation. We had an old, 1995 Hyundai Accent that had no heater to speak of (unless one bent unnaturally under the dash and physically turned on the heat lever), couldn’t roll down the driver side window but yet drove like a dream. Unfortunately, I was rear-ended on I-95 in April last year in Connecticut. The car had long since been paid off, but we couldn’t afford a second car payment, and both of us needed to drive to work.
The insurance company ended up giving us $1,400 for the car, even though the bluebook value was about $150. No idea where they got their math from but I wasn’t going to complain.
Because I required my car for my job which takes me all over the state, I’d drop her off in the morning at her school, drive to work, do my business, pick her up, drop her off at home and go back to work. It was awkward, but at least we got by without the second car.
When our son came along in July, we were able to make it a few more months as she was staying at home, but by November, we really needed a second car and got a 2008 Scion xd. A great investment, great mileage and terrific price.
Since then, we paid off the other car with our tax refund from last year so we still have one car payment.
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Hi,
This is a bit of side note to this dilema, but hopefully it helps. First, maybe you don’t have to settle for the $4,000. It is possible to negotiate that with the insurance company, because (I believe) you are not obligated to accept them totaling the car. In the book Getting to Yes I once read a great description of someone negotiating a better deal for a totaled car.
If it is totaled, you may have two options – take the payment and give back the car or take a slightly smaller payment and keep the car. I once had that choice, and accepted about $200 less than the max offer to keep the car, then sold the car for $440. It was a much less valuable car than yours, obviously. So, that may help you get a little more money back for the car.
Finally, I would think that you could find a pretty reliable car for under $4000 for use as your second car, if the one you currently drive is in decent shape.
Well, good luck!
Chris
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Can the hubby make his sales calls on the motorcycle (not sure what he sells – possible if he sells insurance or something of the like – likely not possible if he sells something big that he needs to take everywhere)? Or can April operate the motorcycle? May not be a bad idea to pay down the debt, keeping only one car and the motorcycle. Have hubby drive the car most days and April carpool most days. When she cannot do the carpool, either hubby or April take the motorcycle. Still keep the bike for sale and when it sells, use that to buy hubby a new car.
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I agree with JD – stick the $4000 settlement in savings and see how it goes on one car for awhile.
If it doesn’t work out, *pay cash* for a used car. You can get a LOT more car than you think for $4000. I’ve bought a $3000 Toyota Camry (1994) and $2000 Mercury Sable (1994) in the last 8 months, and they were both great cars. Nothing glamorous, but I’m not trying to impress people I don’t know or like
.
Unfortunately, the Camry was totaled in an accident during a heavy snow, and we didn’t carry more than liability insurance. Fortunately we don’t have any car payments and an emergency fund so we bought the Mercury about 3 days later when the opportunity presented itself.
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I support paying off debt and foregoing a new car. I love being debt-free; it’s like having lost 100 pounds. The real need isn’t a car per se; it’s transportation, which need can get met — happily and inexpensively — by many choices besides car ownership. More at http://alison97215.wordpress.com/
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Fortunately, (knocking on wood), I haven’t been in a predicament as you and April. But if asked my opinion or what would I do, I would advise her to allow her husband to use her car and she take the 4k and find a used car. Now she should be able to find something decent for at least 2k over that, which means she’d only finance the 2k which would equal low payments.
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OOOoooOOOooh!!!
Steve (#8) hit the nail on the head! Either defer as JD suggests, or buy an old Volvo wagon!!!
I had one (a 1985 turbo) and LOVED it. I swore I would never part with it. I finally did part with it when I traded up to a 1985 Mercedes 230TE wagon (Euro model) for $2900. You CAN buy a QUALITY old car (NOT a junker) that will hold its value and serve you well. When I sold my Volvo (for $1200) it had nearly 250,000 miles on it. My mechanic assured the new owners that it was well cared for, and would easily last to 350,000 – 400,000 miles!
You can do it!
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In a town with no viable public transport, making do with one car could be a real headache for a couple where both people have to go to jobs. On the other hand, since one partner has relatively minimal driving needs, it may be worth trying, just to see if it’ll work.
The Great Desert University recently started a flexcar plan: a $35 annual fee gets you access to a shared vehicle; you pay $9/hour for its use. It might be worth looking around in your area to see if anything like that exists. And if your town has more than one cab company, it would be worth calling around to compare costs: ask them how much a trip to the office would be, and how much it would cost, say, to get from the office to a doctor’s appointment and back. If you’re carpooling a lot, an occasional taxicab ride probably won’t break the bank.
Meanwhile, if it were me, I’d bank the four grand someplace that will make a little interest, and then try to add a little to it each month. The longer you can hold out, the more you’ll have to buy a new chariot when you can…and the closer you’ll be to your goal of paying off your debt.
But do check in to the insurance thing. My son works for a huge insurance company, and he has learned that insurors try to short people, and that it’s possible to insist on a better settlement. Unfortunately, he learned this AFTER his wonderful Camry was totaled when some kid ran into it while it was parked on the street. He really got cheated by the kid’s parents’ insurance carrier, and ended up having to buy a junker that was in no way comparable to the excellent vehicle he’d been driving. Knowing what he does today, he periodically kicks himself for not understanding that he could have gotten a better settlement.
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Definitely do not get a car that you have to finance. The experience on this car shows why. If you have car payments and your car is in an accident, the insurance company *requires* that you use the money to repair the car. If you own the car free and clear, they give you the money and you can do whatever you want with it. A few years ago another car sideswiped my car and put a dent and many scratches in it. The insurance company told me which repair place to take it to, and the repair place gave me an outrageous estimate for it — something like $3600. I even told the insurance company that the repair shop had to be inflating the amount, but the insurance company didn’t care. They cut me a check for the full amount. But because I owned the car free and clear, I didn’t use the money to un-dent the car — I used it for a new roof on the house. I meant to get the car un-dented someplace cheaper, but I didn’t get around to it. I did feel a little bit trashy driving my dented car around town — but then a driver ran a red light and hit me smack in the side, totalling the car entirely. (I was not hurt, just bruised — yay Honda Civics.) Boy was I glad that I had not put all that cash into getting the dents out of my car, but had put it into the roof instead! So in short, financing a car means that when you get rear-ended or whatnot, you won’t have the option of taking the cash and using it how you will. The other people commenting have raised great points about not incurring more debt, but I rarely see this one raised.
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it is amazing how much money you can save doing car repairs yourself and you can keep a car going usualy alot cheaper than car payments. Yeah you might drop $400 on month for parts but if that $400 keeps it on the road for another year or even three months it is still cheaper than a car payment.
Points that are important with car repair
1) buy a manual such as hayes repair manuals they are cheap(about $20)
2)call around for prices (for parts and repairs)
3)things that NAPA,auto zone or advanced auto parts dosent have getthem at the junkyard they are much cheaper.
4)dont worry about fixing things that are cosmetic only unsless you are going to sell it
4)don’t force any thing so much that it breacks
if you breack somthing it can cost you a lot take it to the repair shop(not the dealer they are expensive).
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I’d recommend checking out this book while deferring the decision. Basically, there are way more hidden costs in car ownership then we even realize.
http://www.amazon.com/How-Live-Well-Without-Owning/dp/1580087574
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We had a similar situation a couple years ago…we managed with one car for a few weeks, i would walk the kids to school and then took the bus to work…but we found that our lives are too busy running the kids to this hockey game or that dance class that we definitely needed 2 vehicles…we ended up buying a 1989 toyota tercel with 60,000 kms for $2000, which is the payout we got from our insurance…it’s not the coolest car, but it gets us for A to B and we don’t have car payments.
It is a personal decision, you have to do what’s right for your family.
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I’ll pipe in here. I’m the April who sent in the question. Thanks to all for such great advice. I think we’re going to get a much higher payout than I thought ($7000-$8000). We’re either going to wipe out the credit card debt (we’ll keep $1000 for a start on our emergency fund) and try to go with one car, or we might buy my parents’ Jeep Cherokee for $4000 or so and put the rest toward the debt. We’re leaning toward the first option.
One commentor said I knew what I wanted already, but seemed scared. The truth is that I’m not. I’m totally game. My parents both acted like our idea was crazy, though, so I thought I’d get a bunch of opinions from people with all kind of experience. It seems most of you agree with my original thought.
To clear up a couple of points:
1. The motorcycle will be sold. I won’t ride it, and my husband makes sales calls, so he can’t take it to work. He has to have car stock that isn’t going to fit on a bike, and reeking of gasoline isn’t professional. We had a deal that he’d sell the bike because he knows how much it worries me. I’ve seen what an accident can do to someone on a bike. I know the bike-fans out there will disagree with me, but that’s what we’re going to do.
2. We can’t salvage the truck. The frame is bent. Even if we could get it fixed, I wouldn’t feel safe driving his truck anymore, and I certainly would not want him driving it considering how much he drives.
3. To Starving Artist–wow, you really assume a lot about people. Where did you read that we were living with my parents? I said my dad and I carpool. You can carpool with people you live next door to, which is our situation. How do you know what we’re going to spend to build our house? My dad is a contractor, by the way. Our lot will be paid off in a couple of years, then we’re building a modest home we plan to live in for the rest of our lives. We’re paying over $1200 a month to get the “heavy debt” of $8000 paid, so it will be gone in no time. Even sooner if we use the payout from the truck.
I’m not ignoring the mastodon in the room…I just don’t see it. Maybe others can point it out to me.
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My paid for car went into the repair shop yesterday for at least a week to fix the damage done to it by a big rig that hit us after a tire blow out. Luckily for me, the car was not totalled even though damage is significant.
Personally, I would have to buy another car. There is no way our household can be one car down. I use my car daily for work and client visits. To be without a car means that my income suffers. In your reader’s shoes, I would put the insurance money towards a new car and acquire a payment. I wouldn’t want to do that, of course, but my clients wouldn’t want to see me roll up in a $4000 used car either. $4000 doesn’t buy much around here.
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I would say since you are stretched pretty thin already with payments, take the 4K and put it toward the debt and find a way to live on one car for a year or two, how ever long it takes to pay off the debt and car payment you have. (you would save the insurance and gas costs on the second car too) Then after the slate is clean you can either keep waiting for a new car while saving cash (the smartest option), or take out a car loan on an affordable fuel efficient car and pay it off agressivley. If you have the option to not drive these days either by not having a car or using alternative transportation it is a huge cost savings.
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April,
Sounds like your willing to take the leap BUT if you decide you can not make it on one car – PLEASE look for a car in the $1000 range rather than the $4000 range. You will have more money for debt and really, truly you can get a running car for that kind of money. We have recently bought 2 cars for our kids and safety was our first concern and dual airbags (guess that is also safety) was our second after that we wanted cheap. We bought one son a Hyundai Accent in really nice shape (but very dirty on the inside but nothing elbow grease didn’t fix) and it runs like a dream, great gas mileage too. We bought it for $600. Is it stylish? No. Is it sexy, no but is it safe and great transportation? Yes. We have owned it just over a year and have done nothing to it but change the oil (oh, and the kid added new hubcaps and some other cosmetic crap) We paid $1500 for the other kids car and it is equally good but not as good of a deal. Probably will have higher resale value as the Accent doesn’t hold value but at $600 who cares. Best of luck to you April – you can do it! And glad it is closer to $7000. By the way, neither of these cars had over 100,000 miles.
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Def try and do what you can with one car.
I, like many of us out there, have been in debtr quite a while and the lure of a new car often times gets the better of me, but I have a car right now fully paid off.
If you can use that money towards geting out of debt, do it. Not having the second car will def save you in the end, even with gas prices the way they are. City transit, cabs, and flexcars are def a great way to go.
Figuring out a schedule with second car can also be an option.
The first couple of months of adjustments would be the hardest, but everyone adapts and soon enough you won’t even miss the 2nd ride when you see how much your actually saving in insurance, maintenance, and gas.
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Also, with everything going on right now, I didn’t even consider the insurance savings many of you pointed out. Just one more nudge in the one-car direction.
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Defer as long as possible. Even be willing to “rent” a car from a friend/relative when it is your time to carpool.
When it is time to buy, get an old Civic, Corolla or something of that nature – cheap. Those cars run for years and their owners are always satisfied. I’m not sure I’ve ever met anyone who badmouthed a Civic or Corolla.
For that matter you could get a $1500 Kia and let your husband drive your car, keeping the Kia at home until you need it. My sister (who is 40 and has money) always buys a $1500 cheapo car (Kia, Geo, Saturn) and drives it for 5 years and then sells it for the same price she paid for it. She drives one of my parents’ cars when she goes more then 50 miles from home, but those little beater cars are gold for driving around town (hint: this is why she has money – no car costs other than gas and regular maintenance).
Good luck with the car decision and the decision to get out of debt!
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