Faced with a broken down vehicle and long commute – should Jeff go into debt for a new car or buy another used car with his meager savings?

Today I received an email from DFA reader Jeff of Sustainable Life Blog asking for advice regarding his ongoing automobile troubles – troubles that have just become a bit more troublesome!

Let’s help Jeff best decide his auto purchase

Here’s the format we’ll follow:

1. I’ll give Jeff’s email.
2. I’ll throw a few question back at Jeff.
3. Then give my reaction to his email, along with a few action items he can get started with.
4. Open this baby up for discussion in the comments where you all share your wisdom and experience with Jeff.

Here is Jeff’s original email from yesterday.

Matt:

I’ve been dealing with my vehicle for quite a while now, and this last cold snap finally caused it to give up the ghost.

Because I’ve been spending most of my disposable income on paying down credit card debt, I really don’t have much saved for a new vehicle aside from about the 1,200 that I had previously slated to kill the balance on CC # 2.  Thankfully, I didn’t send this off right away, and now have at least a bit of money available for a car purchase.

My problem really boils down to this:  I have to commute of ~50 miles to work everyday, so going without a vehicle is not an option.  Due to the low amount of money I have saved, I’m going to need to take out a loan, Because I bought my last car for 1k, and I don’t really want to deal with the problems that I am now (which have taught me, and cost me, a lot)

I’m wondering if I should just get a bare bones new car, (they run about 12-15k around here) and just keep that until I pay it off.  I wouldn’t have any recurring repair expenses like I did with my old one, and I’d be in a safer vehicle, but I’d also be in debt.  I’m not really sure what exactly to do.

I’ve been thinking about blogging this as well, but I haven’t quite found the appropriate voice for the story, and Would like to turn this into a post (or possibly 2 or 3) about my experience vehicle shopping.  Do you have any advice for me?

Thanks,
Jeff

Wow… this is a great reminder of the manifold importance of saving at least $1,000 for emergencies… like when vehicles breakdown!  Way to go Jeff.  Look at the bright side… at least you have your $1,200.  🙂

A few questions back to Jeff

1. You seem to have your mind made up about a loan – Why? This is not the only answer.  And when properly analyzed is not the best answer either.  There are a ton of solid reliable cars out there for $1,200, you just have to take a day or to go find one.
2. How much credit card debt do you still have? Since you are still in debt… it may be wise to focus on one thing and one thing only – getting out of debt.
3. Do you keep a budget? If not… start.  Now.  If you are “kind of” keeping a budget, start writing it down and make it a “real budget” that you are accountable to by record each month.  You will be amazed at how much you can still squeeze out of your income.
4. Do you have a plan? Something scheduled and laid out that shows how and when you will be rid of your debt and able to have more financial security?  Having a financial plan is crucial, peaceful, and sustainable.

New or used car – my advice to Jeff

Jeff, reign me in if I’m wrong here… but your goal is to get out of debt right?  If so, then tread very carefully with this decision.  Otherwise I’m afraid you’ll end up as yet another statistic on Brian’s financial fouls ups page.  I have no interest in watching another one bite the dust… I want better for you man!

If it were me, and I was in debt, without a car, and up against the wall with money… I would do the following.

1. Stop acquiring new debt. Hunt for a SOLID, reliable used car with your $1,200.  Especially in this market, that amount will get you a very decent and reliable vehicle.  Check around the web for the best used cars from the late 90’s.  Toyota Camry’s from around that time are both durable and well within your budgeted amounts.
2. Establish and maintain an Emergency Fund. In your email you mention that you were going to use your $1,200 to pay off your 2nd credit card.  A better option is to always maintain AT LEAST $1,000 for emergencies just like this one.  As you (and many others have experienced)  sometimes $1,000 is not enough.  In that case, do what I do – the balanced 75/25 method of debt reduction and emergency fund savings.
3. Implement a debt snowball. After you find your “new” used 1998 Toyota Camry for $1,200 out the door – and after you have created and funded a designated emergency fund with your first $1,000 – begin implemented the 75/25 method, stick to your guns, and watch the debt dwindle away.

Remember our financial philosophy – “sacrifice now to benefit later!”

New or used car – What is Your advice to Jeff

Just as we were able to successfully offer debt help to Wendi in NJ, let’s band together again togther again to help Jeff reach a wise decision he can be happy with for years to come.

What is your advice to Jeff?