Thursday, November 21, 2024

Gary,
My husband and I are in quite a bit of credit card debt and my husband wants a newer car. We have a 14-year old Acura Legend and it has over 190,000 miles on it but we can't afford another bill until we get out of debt. If all goes as planned we should be out of debt within about two and half years. But that could be longer if something comes up. He says that his car won't last two more years. We are trying to save a little bit but we don't have any money to put down on a car. We have money to pay our bills which is not the problem. We just don't have a whole lot of money left over after paying our bills. What would you suggest we do about this situation?
Thanks,
--Mary

Hubby's desire for a newer car is understandable. He's right. His car is old. But a dependable car is only half of the question. The second half is what happens to their finances if they buy a newer car.

Mary's husband probably won't like this. Buying a newer car could throw their family into serious financial troubles. But that doesn't mean that hubby needs to be stuck with an unreliable, unattractive car. Let's look for a solution to their problem.

Mary admits that they're having trouble accumulating any savings after the bills are paid. Any used car is going to require a monthly payment. If they don't have money for savings, there won't be money for a payment.

Even if they could squeeze a car payment into the monthly budget, that would leave them with nothing for unexpected expenses. And we all know that those 'unexpected' expenses will come up. In fact, since they're squeezing the car payment in, there will be even more pressure to use the credit cards for other relatively minor expenses. So they can expect their credit card balance to increase as long as they're making a car payment. And as their balance increases the credit card payment will gradually go up. Each month it will be a little tighter.

OK, so buying a newer car isn't a good option. So what can they do that lowers the debt and keeps hubby in a reliable car?

There's an important fact to remember about the credit card debt. Each month part of Mary's payment is going to cover the interest on the borrowed money. If she can lower the interest rate or the account balance the amount of interest due will decrease each month.

Mary has two options for lowering the interest rate. She can call her credit card company and ask for a lower rate. Especially if she has a good payment history with them.

She can also consider transferring her balance to a new card with a lower interest rate. She'll need to study the offers carefully to avoid surprises. Some charge one low rate for transfers, but a higher rate for new purchases.

Each month will get easier as the balance goes down. And, if she keeps making the same size payment each month, the balance reduction will get larger and larger.

That gives Mary and her husband a little bit more money to work with every month. They have two options for that money. One is to continue to make the same monthly payment to the credit cards and force their balance down.

The second is to selectively use some of the extra money to maintain their current car. A good mechanic can often spot breakdowns before they happen. If they can avoid major engine or transmission failure, repairs will be cheaper than a newer car.

Hubby might even want to spend a few dollars making the car look better. Seat covers or an inexpensive paint job might make him feel a lot better about the old car.

If they can avoid a car payment for a couple of years they'll be in a position to buy a newer car and avoid running a credit card balance. The money that had been going to MasterCard can be earmarked for the car payment.

Naturally Hubby doesn't want to put too much money into an old car. But he needs to remember that buying a newer car now means unaffordable car payments for a used car that still will need repairs. If he hangs on for a little while he'll end up in a much better position.

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