Wow, it has been a while since I did a financial related post....but, here goes.
Most of you know our financial situation (I have been honest, some may say too honest....lol), so I pose this scenario for you.
Hubs and I will be getting back $xxxx.xx from the government in Feb/Mar (once we finally get our W2 from Hub's work), and we are trying to plan what to do with it.
See, my vehicle is a piece of junk! Seriously. The exhaust system needs to be fixed, it needs a new transmission, it has over 250,000 miles on it, and it really needs an oil change.
Anyway, should we spend a good portion of our income tax return on purchasing a newer vehicle for our family (one with less miles, or none would be nice, and larger to accommodate our family), or should we use this money to reduce our debt (also spending some money to fix up my vehicle so it is in proper running condition....at least to the best of our abilities)?
If we had a good credit score, I would say in an instant that we should just reduce our debt because if something happened to my vehicle we could get a loan for a different one, and then pay off the loan amount with the 2010 income tax return. But, we don't have a good credit score. I am pretty positive we would not qualify for any type of loan, and if we did the lender is stupid. Lol. Our debt to income is outrageous, and while we are working on reducing our debt...it is slow going.
So everyone, what should we do? Pay down debt, or purchase a vehicle? Thanks for all your help!
I would say that you should purchase a newer car. The reasons being as follows: I think that you need to have a form of transportation that is reliable for your family and you feel comfortable driving each day. If you are able to afford a newer car and the ins payments then I would say go for it. Debt reduction is an on going process. We have decided that we will be taking 2k out of our income tax return for "fun" and rewarding ourselves since we don't do that. We will be getting new cell phones (Droids because I know you are dying to know!) and I will be getting an engagement ring or B will be finding a new place to live (I'm sort of kidding!) After that we will be getting a new bed since ours is totally worn out and uncomfortable. We are also looking at a new furniture set. The remaining amount (about 4500) will be going in to savings along with all of my tax return.
ReplyDeleteI think honestly it is something that you also deserve. I know you work very hard everyday to cut corners where you can and take wonderful care of your household and your husband and kids. It's hard work and for me getting in to a car that was nice that I like to drive makes me feel better about myself too. Like maybe I'm not doing it all and getting no reward know what I mean?
HI Jenn,
ReplyDeleteMy 2 cents?
Pay down the debt and fix the car so it won't die on you right now. Getting rid of some of that debt will help your credit score and help put you in a better place to get that car loan.
Tough call - I know. We're doing this too - my car's 11 years old and is making funky noises, is missing a hub cap (among other things) and has struts that are 'on their way out'. Cost to fix the struts? $4000. Value of the car? $1500. :) We're paying off the debt and trying to save cash for a second van before the car dies completely. Not sure if we'll make it, but paying off a couple of things certainly helped our credit rating, which will get us in a better place if we do need to take out a car loan.
Hope that's somewhat helpful!
Lea
PS My blog's up and running and yes, I did put my weight/height/inches stats on there! :)
Lea - Thanks for the advice. I am off to check out your blog now!
ReplyDeleteHere's an alternative you may not have considered: use a small portion of the money as a downpayment on a lease for a new car. The "loan" on a lease is much, much smaller than a loan for a new car, and frequently people with poor credit can still get that kind of loan. Then, use the rest of the money to pay down debt so that when the lease is up, you can either buy the car off lease with another loan, or trade it in for something else. The montly payments for leases are also extremely reasonable, and will go towards building your credit score.
ReplyDeleteBeth,
ReplyDeleteI don't know about a lease, I view that as renting an apartment....and each month I feel as if I am wasting my money because I don't get anything, long term, from the apartment. I wish we had a home, some place we could build equity. Ugh, being a "grown up" sucks. Haha.
I'm not sure... tough call!
ReplyDeleteThe idea of the lease is twofold: one, you get a reliable, maintenance free vehicle for less than it would cost to buy it out right. Cars depreciate as soon you drive them off the lot,rather than build in value like a home, so it's usually smarter to buy gently used, or lease unless you really have the money for a new car, and two, you can buy the car off lease; the money you paid in gets taken off the top at the end.
ReplyDeleteBoth Par and I lease. Well, he just bought his off lease, and mine is up in March so we are trying to decide; buy it off lease or lease a bigger car. Financially leasing can make a lot of sense.
And I feel the same way about the home and building equity. I hate paying rent, but I LOVE leasing my car.
I'd do a three way split personally. Put 1/3 in an emergency savings account if you don't already have one set up then put 1/3 towards bills either past due or credit cards and the final 1/3 towards purchasing a new to you car. After reading all sorts of budget books, budget blogs and talking with friends we will never be buying a brand new car. You can pay cash for a very safe, reliable and well maintaned vehicle versus paying for a brand new car that drops in value by half as soon as you drive off the lot. You could also look at how often you drive your car and see if you really need a car or could make do with one since hubby works from home. Lots of decisions to be made and that's just my opinion but you and Zach know what's best for yourselves.
ReplyDeleteI'm not sure... tough call!
ReplyDelete