| Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
The Dollar Stretcher website
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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.
--End--
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