Buying a used car can help you save more and pay off your debts quicker
The recession is proving to be as stubborn as a toddler who won’t go to bed. The longer it slogs on, the more your nerves are frayed. And, understandably, some people have become more indecisive in making financial decisions. Here are some of the decision dilemmas:
Q. My husband is about to enter his fourth year of law school, of which three years have been paid for by his company. Unfortunately for us, they’ve stopped paying. We’ve taken out a loan to pay for his final year. Now my husband’s car has decided to cause problems, forcing us to buy a new car. This is our last month of car payments on my car, and December is the last month we owe money to the seller of our house for items we purchased from him. The monthly payments we were paying on my car and to our seller were going to go toward a celebration vacation. We’ve been carpooling to work and I’m fine with it, except for the days he has classes. What would you do?
A. First, I wouldn’t buy a new car. I would buy a used car. Second, if you can get by with the one car, take the two debt payments you were making and put that money into a savings account so you can make a hefty down payment or even pay cash for the second car. Finally, the vacation should be put on hold. You can still take time off - just be frugal about it.
Q. I’m a firm believer in the “buy new, drive it into the ground’’ club, but unfortunately an irresponsible driver destroyed my 11-year-old car. Insurance paid me $2,000 for it. Prior to the accident we were saving to buy a house and have a down payment fund of $25,000. Our credit union approved us for a $15,000 auto loan but we’re having trouble finding a car that fits our needs at that price. Should we spend money from the down payment fund?
A. I suggest you join the “buy used, drive it into the ground’’ club. I would buy a reliable used car for $10,000 or less, taking the money from the down payment fund. Then I would quickly build that account back up. If you don’t want to tap the home down payment, change your car search criteria. You may not get the car you “want,’’ but it will prevent you from taking on a lot of debt. If you are going to take the loan, borrow as little as possible. You can find a reliable, fuel-efficient car for less than $15,000.
Q. I just paid off my credit card debt. I will be moving back in with my parents to save on rent. I still owe school loans ($100,000) and don’t have any savings. Should I pay off loans or go for the savings?
A. Build up a small emergency fund and pay down the debt. Save about a month’s worth of living expenses, then live as frugally as possible and pay down the loan debt. Also, sit down with your parents and let them in on your plan. They deserve to be kept in the know since they are allowing you to live rent-free.
Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com. 
