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Transportation!

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Your comments got my wheels turning (pun intended) on what I will need to do once the debt is paid off.  I think I was so focused on not even going there that the obvious did not occur to me until your comments started streaming.  I need to buy a car.  As some of you might recall I am currently the beneficiary of my generous parents and am driving a vehicle they were not using but did not want to get rid of.  I need to return that to them and so I’ll be facing the decision of giving it back to them as soon as the debt is paid off, or waiting to set aside enough to either have a hefty down payment or…dare I say it?  Buy a car CASH???

The thought blows me away!  I know buying cash would be just awesome but at the same time it is as though my brain cannot compute that possibility.  That’s sad.  I need to get to a point where financing a car seems like the absurd idea and not the other way around, right?  If I save for 6 months I’d have roughly $18K.  That’s certainly enough to get something reliable and with good mileage.  I tell you what–one of the best things about this journey is to have OPTIONS.  In the past life was about trying to figure out how I’d squeeze another monthly payment out of my monthly income and here I am with the option of saving for a pretty short amount of time and buying cash.  What a luxury!

I’ve also wondered if I could just buy this little RAV4 from my parents but I think if I were to try to do that they would want to give it to me outright.  I don’t want to do that for a whole host of reasons.  They are elderly and with four siblings in the mix (all of whom have been helped at some point or another in life), things might get sticky.  No one has said anything to me b/c I think they are all aware of the favors they’ve been granted, but I’m sensitive to minimizing family drama.  Life is dramatic enough.  I just don’t think my folks would take payment for the vehicle and then it would be all sorts of silliness between me and them.

Anyway, just something to think about as I pedal on to financial freedom.


33 Comments

  • Reply bobbi |

    I think if you sat down with them and explained everything to them about how you feel, you could come up with a reasonable price. Have your siblings get in on it too if they want, but really it is between you and your parents. If you pay for it then they shouldn’t have a problem. When my daughter grew up enough to seriously buy her own car, she asked to buy my 1994 honda. She and I came up with a figure and she paid for it totally on her own. I saved the money and gave it back to her for her wedding. She paid me, but it was MY choice to give it back to her in another form. Just my opinion of course. I don’t know your family obviously, but I think it could work. 🙂

  • Reply emmi |

    1. You will be taking care of your parents so you can think of the car as them prepaying it forward. I would simply mention to your parents that you can now buy a car if they want the one they gave you back again.

    2. On that note of buying. Financing is so cheap. SO CHEAP. That paying cash does not necessarily make sense from a flexibility standpoint. The first thing you should be doing with no debt is building up an emergency fund that is at least 6 months of salary (or more!). So if you happen to need to buy a car during that time of building that up, you are much better off with the chunk of cash on hand and a car loan than you are with far less cash and no car loan. You can always make the car payments out of the emergency fund, but it is very awkward to get cash back out of a car you own outright.

  • Reply Pam E-P |

    If they insist on giving it to you, decide what kind of monthly payment you would be paying at a reasonable sales price and find ways to make a payment each month. Prepay their utility bills, buy gift cards for their grocery store, gift cards for gas, etc. You won’t be paying interest, can make payments over time, satisfying your conscience and your siblings, and still be able to save for an emergency. It makes sense to buy a car you know has been taken care of, but it also makes sense to pay your parents for the car.

    • Reply Claire |

      I like this Pam. I absolutely must pay them for the car. They are very stubborn though and a big part of me doesn’t want to take this on!

  • Reply Adam |

    Oh man it’s like the commenters got loose from Dave Ramsey detention and left sabotage plans here.

    1. I totally agree with you about the car and your parents. If you saved money on the car you’d pay for it many times over in family drama. If you like Rav4’s just save up and buy another one like it. (You can get a decent car for 7-8k, keep saving for another 6 months, and then sell your 7k car and combine it with your new savings and buy your 15-20k car cash).

    2. While Emmi is right that financing is cheap (you can get a car loan for 1.9%!), and ordinarily this seems smart, I think it’s a bad idea. First why would you want to spend all this effort getting out of debt/slavery and then go right back to the lender? Just because their debt product is on sale?! Don’t do it!

    Second, even if debt is cheap, the biggest issue I have financing a car is that it’s a depreciating asset. I think savvy investors could use debt to buy appreciating assets like property/real estate right now because debt is cheap, but they’ll never use debt to buy a depreciating asset. Buy the car in cash. Step up in quality by getting better cars over time with additional savings. The industry makes 15 million cars every year. There are plenty to choose from.

    • Reply scarr |

      Adam – I agree with you 100%!!!! Getting out of debt is half the battle, it is staying out of debt can be more difficult to maintain. Financing cars is ridiculous, I don’t care how cheap it is. The day you drive it off the lot, it has already lost significant resale value.

      Claire – depending on what you need in a car, there are great options to choose from given the amount you listed. You should be able to find a car that is only a few years old and with low mileage. While I do believe in having an emergency fund, if you need a car so you can get to your job and get your kids to the places they need to be, then that should come before the emergency fund. And it is so nice your parents borrowed their car to you, but sounds like you would be more comfortable buying a car for yourself (since they probably wouldn’t take payments from you).

      • Reply Claire |

        Definitely Scarr. The generosity of my parents has gotten me through this difficult time and I owe them big time for the months I’ve used the car. But I just do not want that relationship to continue when I am debt free!

    • Reply Claire |

      Did I mention I’m the most mild mannered of the sibs? And keep in mind…I’m the trial attorney!! We have a doctor, a nurse and two top executives for major corporations! I wouldn’t characterize us as mellow!!! I just do not want to go there. Bad things always happen after people pass away and I don’t want to add to what I already know will be coming!

    • Reply emmi |

      Debt isn’t alcohol where one drink sets off a binge. Or I wouldn’t think so . . .

      Being money smart is the goal. If someone has a full emergency fund already, most certainly they should pay cash for a car. But staying out of long term debt when one just got out of debt involves having cash for the unexpected more than the expected.

      • Reply scarr |

        I understand what you are trying to say and I agree that having no emergency fund could lead people back into debt. Hopefully Claire will be able to come up with a way to save for emergencies and a newer car so she is not at risk of falling back into debt.

        But I disagree with you about debt not being like an addiction: for some people, spending money is a drug – buying things makes them feel euphoric and forget the problems in their lives to the point of neglecting their relationships or jobs, just like drug or alcohol addiction. Compulsive buyers are often drowning in loads of debt. In order to break the cycle, behavior has to change with the debt balances.

        • Reply Claire |

          Agreed scarr. I can now identify my thought process as I am about to spend and I absolutely feel euphoric. I also have some incredible justification skills. That trip to Marshall’s I took last week is a great example of how quickly I can go back to that place. $75 will become $750 will become $7500 on a credit card in no time at all. That sounds crazy because it IS crazy and that is what the spending addict in me has to keep in my conscious thinking. Having some savings will be the first priority before I tackle the car issue. I can’t go into the car buying process with the thought that a small monthly payment will be “no big deal” because that’s the first step on that very slippery slope for me.

      • Reply Claire |

        I kept reading and re-reading your “if someone has a full emergency fund already…” statement because it kept making me ask back “what’s a full emergency fund?” Obviously it is more than I have right now but the rationalizer in my head says that’s a bottomless pit that can never be filled. I know you are saying that I need to fund the emergency account to my defined level but I just don’t have that definition yet. Six months of living expenses with no debt payment would be about $18K…that’s a good starting point I guess!

        • Reply Jen from Boston |

          The rule of thumb is 3-6 months of expenses. And, in some cases, a whole year. It really depends on how stable your job is, how quickly you could find a new job, any other assets you have, etc.

  • Reply Meghan |

    I’m with Adam. Once I get rid of this car payment, I never want one again. So what if it’s a low rate – I hate owing money!

  • Reply margot |

    Why on earth ever work this hard to get out of debt if you might jump right back in??!! Please consider taking a blood oath to never go into debt again (other than maybe a very conservative mortgage). You don’t need debt. It’s powerful to change your entire mindset to one that doesn’t have debt as an option. If you can’t buy it (with actual money), you can’t afford it.

    You can get excellent (or at least adequate used cars) for $3000, $5000, $10,000… $18K is a very luxurious used car. A used Honda Accord or Civic or Camry or Taurus or any other similar car could easily be bought for $10K or less and will meet all of your needs. Or get something even cheaper if you want it sooner, and then you can always upgrade to a better used car in a year or two.

    Also, a used car isn’t some form of punishment for those without money. I plan to never buy a new car no matter my level of wealth. They just aren’t wise. They depreciate a ton the moment you drive them off a lot. And even the most basic cars these days have more luxuries than any of us imagined even ten years ago.

    • Reply Claire |

      Margot–rest assured that even before “meeting you” I did not buy new cars. I know my debt may not reflect that but I promise, I have always been a gently used car gal.

  • Reply first step |

    If you decide you want to buy the RAV4, the easiest way to avoid drama is to look up the value online, print out the information, and write up a Bill of Sale for you and your parents to sign. You have proof for your siblings that everything is on the level, and if your parents don’t want to accept the money, open a separate joint account in all three names and put the money there. Inform your siblings that the money is in the account, in case of an emergency with your parents, and you can pay bills as they come in.

    If you want a different car, start your research early on so you’ll know what the price range is for the car(s) you’re considering. We just bought a used RAV4 about 3 months ago, and it took us 3 months to find one. We ended up buying a “Used” 2012 with about 1200 miles because we couldn’t find a 2009 or 2010 with low enough mileage for our needs/comfort level. We were still able to pay cash, and we’re about back to where we were before the purchase because of an unexpected bonus for my husband and extra hours at work for me.

    Good luck!

    • Reply Claire |

      Great tips first step! This Toyota is a 2008 and has 36,000 miles on it. My commute is 8 miles round trip and it is only when I go to see my parents that I put more than 30 on it on a drive. I like the challenge of finding a quality used car.

  • Reply Alexandria |

    I think paying $18k cash for a vehicle sounds beyond reasonable. & then you can move on and start saving for your future. The first paid-for vehicle is the hardest. But as an “always paid cash for my cars” person, just have to say it’s not a big deal. Once you get ahead of the curve it is easy enough to stay there. Just pay yourself any car payment you were paying in the past. We save $100/month for our next vehicle. It’s no big deal, and the longer we keep current vehicle the nicer car we can splurge on next time. So it feels rewarding to keep our current vehicles longer. (We have $14k saved today and I doubt I’d keep it more than 20 years or $24k). To pay cash for a car might sound mind blowing. But saving $100/month is barely even noticeable in the budget. OF course, early on we bought far more modest cars. We just paid $10k for both current vehicles and they were “almost new” so expect they can easily last 15-20 years. Earlier vehicles were very old and inexpensive, but would still last a solid 10 years (which is probably longer than average American keeps new car). I just mean those first cars didn’t last 20 years.

    • Reply Claire |

      I do love the idea of paying a used car in full. I was expressing that it is unfortunate that my brain still sees it as unusual and uncomfortable! It should be what I think of first! Ongoing brain retraining here…

  • Reply Patti |

    Yes yes yes to what everyone else said. Staying out of debt is a mindset and financing a car is not smart (speaking as a dummy who has done it in the past :)!!

    Don’t forget the feeling of being a debt slave, your car -whatever you can afford- will be more fun to drive when it’s all yours. Also, we all tend to spend more when financing rather than paying with our own cash.

  • Reply JMK |

    My husband and I buy 3yr old cars and drive them for 10 years. we alternate replacing our vehicles so we do one every 5 yrs. My current 2000 Civic is scheduled for replacement this year but is holding on remarkably well so I may actually get an extra year or two out of it. I was able to work from home for a couple of years at my last job so I haven’t racked up the expected mileage on this one.
    We never have and never will buy a new car, but I’m glad others do or there wouldn’t be all those nice 3yr old cars available for me! Being able to afford a new car isn’t the issue, we’d just rather put every cent we can toward our retirement savings and paying off the mortgage in record time. Retiring early is directly tied to those two things, and new car smell is definitely not important enough to me to delay my plans to retire in my 50s.

  • Reply Diane |

    I hate to beat a dead horse here, but I don’t think you have enough of an emergency fund and that should be your next priority after you pay off your debt. (In fact, I would have a lot more in that fund right now before being so aggressive with your debt payoff plan.) You are the sole provider for your girls and I’m wondering if in the back of your mind you’re thinking, well, if something happens, I’ll just use one of my credit cards?

    • Reply Jen from Boston |

      I agree. If you didn’t have children I would say the $1000 emergency fund is all up to how much risk you can tolerate. But children? You need more than that.

      • Reply Claire |

        Maybe I am relying more on my ex than I realize? The children are not going to go hungry if I lose my job tomorrow. A perk of a good divorce? Maybe.

    • Reply Claire |

      Thank you Diane–I do want to remind everyone that I am not the sole provider for my son and daughter. Their father and I share the financial obligations of raising them. That isn’t to say that I shouldn’t have more set aside and as someone commented I DO have $3,000 per month that I hold on to until the end of the month that if needed…it’s there. I don’t mentally rely on my credit cards…I promise! I just want them gone as fast as possible.

  • Reply Janelle C. |

    Getting out of debt is NOT just the goal – staying out of debt is the LIFETIME goal! DO NOT GET A LOAN! I don’t care how cheap it is to get a loan, don’t do it! A debt is a debt is a debt. And, in the same case, a debt to your parents is the same. Do not buy their vehicle. Save until you can get your own WITH CASH and then give the vehicle back, and give them something as a ‘thank you’. If they won’t take money then at least take them out to dinner. As for a new car,$10k will get you a very reliable vehicle. Then put every penny into savings till you have a 6 month living expenses buffer. You are the sole provider, so you need that savings buffer more than a close-to-new car.

  • Reply Jen from Boston |

    I paid cash for a brand new car a little over a year ago. With the low loan rates I could have gotten a loan and invested what I would have spent on the car, but with layoffs in my industry and company going on I didn’t want to chain myself to another payment, so I paid cash.

    I am, however, putting aside $250/month for the next car, which I will probably buy in 10-15 years. Sure, it can be seen as another obligation, but if I suffer a major financial setback I can stop setting aside the $250 without the repo man coming. So, that’s something to consider.

    Oh, and as a side note, I used three different car buying programs. the first was AAA’s program that connected me with a no-hassle dealer. The second was a special credit union deal that GM offers – members of certain credit unions get employee pricing, and my credit union qualified. So, I got quoted INVOICE!!! And the thrid program was my GM Card rebate. I had a low balance, but it was February and car sales were bad so GM offered to top off my rebate to $2000. So I was able to get a brand new car for $2000 below invoice. I was pretty stoked!! And I didn’t have to haggle 😉

    • Reply Claire |

      You are a brave soul Jen!!! To admit you bought a NEW car! I’m teasing ya…you did it smart obviously! Great job!

      • Reply Jen from Boston |

        LOL, true! Buying a new car is a personal finance sin! But I drive them until they’re nearly useless. My big fear is buying a lemon, and I’m not comfortable with haggling, so off to the no haggle yet trustworthy dealer I go 🙂

        FWIW, this is only the second new car I’ve bought, and only the fourth car overall. The first two cars were actually gifts – one was for graduation, and the second was assistance from my dad when my first died while I was on my way to my first “real” job. Both the of the cars were used.

        My third car I bought new when I was 26 with a loan – I’m not going to tell you all the interest rate because you’ll choke – but I paid off the loan early and I kept the car for 16 years. I plan on keeping my current car for just as long, perhaps longer assuming the technology has improved overall quality.

        Oh, and I forgot to mention that another tool I used in researching my car purchase http://www.truecar.com. It’s a relatively new website that breaksdown a new car price allowing you to see what the market rate is for a specific car in your area, and the true cost of the car for the dealer. For example, in my case the real cost of the car for the dealer wasn’t the invoice. There was a $500 or so holdback(?). A holdback is a payment to the dealer from the manufacturer for each car sold. When I was buying the site only priced new cars, but they were working on getting market data for used. It’s worth a look.

    • Reply Jen from Boston |

      I just skimmed the article – I think it’s very good advice. It’s similar to how I bought my car. I researched the daylights out of it and pored over the trim options until I decided on exactly what features I wanted. I then used AAA’s car buying program which connected to me a reputable dealer.

      Now, here’s a key point – the internet salespeople are incented differently than the regular salespeople. And the internet salespeople tend to be the same people who handle fleet sales to car rentals, businesses, etc. So they usually don’t do the high pressure tactics.

      Unlike the author of the article I didn’t offer a price (bad move, I know). However, because I’d done my research I knew that when they quoted me a price I knew it was reasonable and I wasn’t getting fleeced. I also traded in my car – I’m not sure if the CarMax people were in my area or not, and I didn’t want the hassle of a private sale because I didn’t want someone to complain if my old car died within a week of purchase, which was very possible. And there’e the whole Cragislist stalker issue, too. So I figured the reduced trade-in value was the price I paid for off-loading any liability and headaches to the dealer.

      But, yes, the internet is your friend in buying a new car.

  • Reply maria |

    I absolutely recommend not financing. You have so much more power when you pay cash instead of financing. Last summer my brother and I went car shopping to buy a gently used car for mom. When asked if we were financing, we replied ‘no, paying cash’. You could literally see the difference in demeanor, almost like a deflating balloon. However, no one was ever rude to us (surprisingly) and we hit up quite a few used car lots. In the end, we didn’t end up buying the car, so I can’t say how the whole process would’ve turned out.

    I have purchased two vehicles, both used. The first had been a rental in its previous life, bought 2 years old with 40k miles. I was 18 and didn’t know any better (I wouldn’t buy a rental today), however, between myself and mom we had the car for about 22 years. The current vehicle was bought used (1 year old with 10k miles) and I’ve had it for almost 18 years. Both times I financed for 4 years, but paid-in-full within 2 – 2.5 years. My commute is 2 miles to the train station, so I’m in no need of purchasing a new-to-me car, although I want to, and it would be beneficial over the long term, however, I find it very difficult to justify the purchase (it’s just going to sit in the parking lot for 10 hrs/day, why buy?). I’m pretty sure I know what I want and need to research trims, but I also know what I’m willing to pay, regardless of trim, and I have plenty saved to pay cash. I have a plan in mind of what to do if/when I decide to purchase. Hopeful it’ll work in my favor. If not, oh well, I don’t ‘need’ the car, so there’s absolutely no pressure for me to purchase and can walk out the door if I don’t get my price.

    BTW…I came across this article yesterday, http://www.edmunds.com/car-buying/confessions-of-a-car-salesman.html. I’ve only read the first three pages, but it’s very riveting.

So, what do you think ?