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Save for a car or pay down student loans?

690 Views 15 Replies 14 Participants Last post by  Pumpkin_Pie
So, my car is old. It is a 98 Honda Civic, and it just had its first major repair a couple of months ago. I have been trying to follow Dave Ramsey's plan, and have $800 saved in an emergency fund (I am extremely low income, and he suggests $500 for very low income folks).

Anyway, I was thinking of saving like a mad woman and buying a "new" car next spring and then putting all of my extra money at that point toward my student loan (my only debt). Now I am thinking of bumping my savings up to $1000 and using that for the car if I absolutely need to replace it and paying on the student loan. I just can't figure out what makes the most sense.

I am an extremely low income single mama, but I do a ton of odd jobs here and there including babysitting, so we are doing pretty well most weeks. I have $51K in student loan debt, so it will definitely not be paid off in a year or even 5, but I figure I could knock it down a couple thousand a year anyway.

Any suggestions?
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Quote:

Originally Posted by Pumpkin_Pie View Post

Anyway, I was thinking of saving like a mad woman and buying a "new" car next spring and then putting all of my extra money at that point toward my student loan (my only debt). Now I am thinking of bumping my savings up to $1000 and using that for the car if I absolutely need to replace it and paying on the student loan. I just can't figure out what makes the most sense.

Any suggestions?
Don't use your emergency fund for a new car, its almost like inviting a murphy visit to be without the fund. I think throw all your extras at the car fund and then go back to the student loans.
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We are in the same boat. We are going to stop snow balling and save for a "new" car and a home down payment then get back to snowballing.

Dave has a great plan but sometimes you have to tweak it
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Quote:

Originally Posted by mtm View Post
Don't use your emergency fund for a new car, its almost like inviting a murphy visit to be without the fund. I think throw all your extras at the car fund and then go back to the student loans.
This is the part that I am just not sure about. There is a good chance that my car will survive for another year or two, and Dave Ramsey advocates driving beater cars until your debt is paid down. I am thinking the $1000 is an emergency fund that car repairs will come out of if I can't afford them (emergency repairs, not things like oil changes), and needing a new car suddenly would certainly qualify as an emergency.

Maybe I should save up $2000 so I could buy a cheap $1000 car if I absolutely had to and still have a decent sized emergency fund and then throw all the rest of my money at debt?

I am just so torn. I was planning to buy another 2 year old Civic which would cost about $12K. My car will be worth about $2K as a trade in, I will receive about $4K in tax refunds, and I would have about another $2K in savings by next spring, so I would have more than half of my "new" car paid for, or I would by a 4 or 5 year old Civic and have it paid off in cash. I just can't decide!!
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Suze Orman recommends paying off your student loans because they are the only debt that will follow you for the rest of your life even through bankruptcy. So get rid of them now.

Then again, she also recommends having at least an 8 month emergency fund.

Good luck!
I would first save for a larger emergency fund, then save to pay for the car outright, and then pay off the student loan.
Good luck!
If you have a good idea that the car may not last long term, I personally would be trying to save towards the car so that if and when it dies you are not caught off-guard. Worse case the car lasts much longer and you can alwats put that money towards the student loans.
Why are you planning to sell your car? is there something you haven't mentioned about it?
I couldn't tell from your post if you current car is damaged or is just in the usual "older car" condition.
Unless your car is actually on the verge of breaking completely I wouldn't get rid of it. Heck, I just bought a 1998 Subaru last year! I will probably get another 100,000 miles out of it. My husband has a low-mileage (120K) 1984 Subaru that is in great shape.

Sure, I have repairs every so often, but they cost me SO much less than a car payment. It would take me a heck of a long time to rack up 12K in repairs.
Quote:

Originally Posted by tinuviel_k View Post
I couldn't tell from your post if you current car is damaged or is just in the usual "older car" condition.
Unless your car is actually on the verge of breaking completely I wouldn't get rid of it. Heck, I just bought a 1998 Subaru last year! I will probably get another 100,000 miles out of it. My husband has a low-mileage (120K) 1984 Subaru that is in great shape.

Sure, I have repairs every so often, but they cost me SO much less than a car payment. It would take me a heck of a long time to rack up 12K in repairs.
um, yeah that.

our newest car is a '97 and our oldest is an '87. we're still hoping to get years out of both of them. i think i'd put more in your emergency fund (at least $1000, maybe $2000) especially if you are low-income before doing anything else. then i _might_ hit the student loan debt, but make sure you are on income contingent, if you make 20 years of payments they will write off the rest of the loan though you might have to pay income taxes on the remainder.
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Why would you get a new (to you) car if the one you had still worked properly and suited your needs?
An 11-year-old car is not old, especially for something like a Civic. My dh commutes to work in a '92 Honda Accord, which has had some major repairs and has been totaled in an accident. Total cost of keeping the thing running since we've had it has been much less than replacing it would have been, even including the accident repairs. And that is assuming we would buy another '92 Honda!

Put more money in your emergency fund, so a potential unexpected car repair wouldn't be a problem, and you can take care of the car so you won't need another one.
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another thing to consider is whether interest on a car loan or interest on student loans would be higher. we have $65k in student loans but the interest is less than 2%. Sure we'll be paying on it for the next 25 years but the interest is so low it is worthwhile to not pay it down since borrowing for other things would cost more. If you're in a similar position, where borrowing for a car would be more costly than your student loan interest, shore up the emergency fund.
To me, a 98 civic isn't old.

My first car was a 92 civic...we sold it when i reached about 500,000 miles. I still see it running when i go back to my old town...those cars last forever as long as you take care of them.

Our current car is a '93 toyota camry with just over 100,000 miles on it. I plan on it lasting another 5+ years or so...but it just broke down and we are currently saving money to repair it, so we'll see.

I'd stick to the TMMO and pay off your debt - if you forsee your car breaking down beyond repair then maybe save up for a new TO YOU car, but new cars aren't worth the price. Trust me, you'll be regretting that car payment every month...something you could've used to pay off the loans instead.
Quote:

Originally Posted by Pumpkin_Pie View Post
This is the part that I am just not sure about. There is a good chance that my car will survive for another year or two, and Dave Ramsey advocates driving beater cars until your debt is paid down. I am thinking the $1000 is an emergency fund that car repairs will come out of if I can't afford them (emergency repairs, not things like oil changes), and needing a new car suddenly would certainly qualify as an emergency.

Maybe I should save up $2000 so I could buy a cheap $1000 car if I absolutely had to and still have a decent sized emergency fund and then throw all the rest of my money at debt?

I am just so torn. I was planning to buy another 2 year old Civic which would cost about $12K. My car will be worth about $2K as a trade in, I will receive about $4K in tax refunds, and I would have about another $2K in savings by next spring, so I would have more than half of my "new" car paid for, or I would by a 4 or 5 year old Civic and have it paid off in cash. I just can't decide!!
Is your old car in such bad shape that it will need $10,000 in repairs over the next 2 years? This seems like the bottom line for me. Will the $ you put out for the old car to be repaired be more than the money you spend on a newer car? I really don't see a 1998 civic, unless it is in Terrible shape, needing that much $ in repairs.

We drive a 98 volvo, which I think is the same reliability as a honda,
and I just put $700 into it for repairs. But I don't owe on the car so even though it hurts to put out $700 I don't have payments to worry about.
Now I can build our EF back up and then start to repay debt again.

Oh, the $1000-$2000 car idea. I don't think that is wise. Unless the honda is in extreemly bad shape I don't think you will get a car as reliable for that price. Also, you won't know what to expect from a 'just bought' car like you do yours.

Really I don't think that 1998 is too old to drive. If you were talking about a car from the 80's maybe I would think your plan of a newer car is good, but before debt is paid off I would buy a car from the late 90's or early 2000's as my newer car.

Good luck and use your wisdom not your want.
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I wouldn't trade up now. A 98 civic is a pretty decent car, especially if it just started needing repairs. I would make sure you have saved up for repairs, so I like the $2000 idea. Don't consider it your emergency fund, consider $1000 of it your car repair fund. Because you know that you have an older car and it will need repairs, so plan for that - its not an emergency and shouldn't be treated by one (at least in planning) - plan for it to happen so that it doesn't become an emergency. I am a big believer in not living in an emergency mindset.

We have very little debt (only a very low interest car loan on my car), could buy a new car with cash and my husband is still driving his 98 Chevy Malibu, and we aren't going to get a new one for a number of years yet. It works fine (with minor problems like the driver side window not rolling down, the brake light always on, etc) and seems to run us about $1000/year in repairs. That's a good bargain in my mind. Chevy's don't have the long-term maintenance record of Hondas, we'll probably trade his in for a civic when we do it. If it was a 98 honda, I'd feel pretty good about it.

What we do is put money in a car maintenance fund each month. If the car needs repair, it comes out of that fund. Any extra money that accumulates in that fund because the car didn't need that much repairs is future savings for a "new" car. I would say, save up a reasonable amount (like $1000) for car repairs, then put a small amount into that fund every month to replenish it, older cars do need repairs its an expense of owning them, then put the rest toward the debt.
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Ok, so I think the $1000 car repair fund and the $1000 emergency fund make sense, but how do you plan for a "new" car? I would like to eventually replace this car with another one just like it and pay cash rather than take out a loan. I bought this one in 2000 and it had just come off a 2 year lease. I LOVE, LOVE, LOVE my car, but I worry that I may have one or two big repairs in a row that would put me out of transportation. It took, me 6 weeks to gather enough cash to pay for the last repair, and I worry that if I have to use the $1000 emergency car repair fund that something else will happen.

I guess I am just being a worry wart. I know that if I save and buy another Civic that is much newer than this one then I won't have to worry about repairs for a long time (hopefully), but if I keep this car, I may have to pay for repairs, but that is not a given. I am just not sure how to weigh the odds, and how to decide when to start saving for a "new to me" car.

Hope that clears up any confusion. Thanks for all of the advice so far! I just so want to pay down my student loan debt. It is all in economic hardship deferment right now, so I am not accruing much interest, thankfully, so now is the time to really be working at chipping away at it.
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