Should I get rid of my car debt?

Should I get rid of my car debt?

Atlanta, GA · Member since 2017 · 2 posts · 0 votes

I bought a car about 4 months ago, thinking it was the right decision, and I'm still thinking it may be. I drive about 3,000 miles per month for work. It works out because I get paid twice as much from my tax breaks for living over 50 miles away. And I actually enjoy the drive because it gives me more time to listen to books. I know it sounds odd, but I make a lot more money living the distance, and I'm okay with it. It's between 45 mins to an hour.

My concern is I'm trying to get rid of my debts to pay myself more, but I obviously need a reliable car for the distance I'm driving. We're talking almost 40,000 miles a year being put on a vehicle.

I bought a Dodge with 10,000 miles for $13,000. Practically new, good on gas (33 mpg average), and reliable. I've already put $3,000 down and I owe right at $9,000 currently.

I'd like to think this was still a good purchase. For $5,000, I could've gotten something reliable but with 150,000 miles and putting 36k+ on it per year would make me think I'd need another vehicle after a year and a half.

I thought just spending the extra money and paying it off ASAP was the right idea for my specific situation, but now I'm thinking maybe not. Opinions?

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Fort Smith, AR · Member since 2016 · 49 posts · 17 votes
9y

If you have other debts at a higher interest rate (credit cards), I would eliminate those first using the snowball method. Once they are all paid, tackle the car payments.

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  • Fort Smith, AR · Member since 2016 · 49 posts · 17 votes
    9y

    If you have other debts at a higher interest rate (credit cards), I would eliminate those first using the snowball method. Once they are all paid, tackle the car payments.

  • Craig CurelopBusiness Member
    Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Thomas Branson - it depends on what interest rate you financed the car at? Typically, car loans have pretty favorable rates. For the sake of this discussion, let's say the interest rate on your car loan is 4%. By paying down your car loan, you are getting a guaranteed return of 4%. If you are highly confident that you can earn a higher than 4% return elsewhere. It would be wise to keep making the minimum payments on your car and invest somewhere else.
  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Thomas Branson, I'm curious as to the PURPOSE for the question? You're already on top of the idea of paying it down fast, and my guess is, reliable payments are doing your credit rating a favor? If you can't pay $9k down FAST (with the income from your job that you drive an hour to each day), then how will NOT having that debt help you much anyway?

    If you owed $25k+ in the same circumstances, my answer would probably be different. But as it is, I believe trading in your $13k car for a $5k one would likely be: FALSE economy. 

    And if it's true that the Interest Rate ISN'T high, then you could still consider the idea of NOT paying it down fast, but instead, put every extra dollar you have into SAVING? Because when it comes to buying your first property, your Lender doesn't JUST look at your debt. They ALSO want to see your pattern of saving! Welcome to BP. All the best...

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