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I have been searching for ways to lower my monthly expenses and the item that would make the biggest impact is my car loan. I'm unsure if it makes sense to trade it in for something cheaper though. Here are the details:
Car payment is $730.45/month. The interest rate is 3%. I am underwater about 3k on it currently.
I have a bankruptcy that is nearly a year old now and I kept the loan. I have been told that continuing to pay on it doesn't help rebuild my credit at all. My current credit score is 630. Our monthly income is about $5500 after taxes. I only have about $2500 in savings at this time.
I would be looking at cars in the 15k range to downgrade to. I don't want to have to worry about reliability and repair costs.
I have been searching for ways to lower my monthly expenses and the item that would make the biggest impact is my car loan. I'm unsure if it makes sense to trade it in for something cheaper though. Here are the details:
Car payment is $730.45/month. The interest rate is 3%. I am underwater about 3k on it currently.
I have a bankruptcy that is nearly a year old now and I kept the loan. I have been told that continuing to pay on it doesn't help rebuild my credit at all. My current credit score is 630. Our monthly income is about $5500 after taxes. I only have about $2500 in savings at this time.
I would be looking at cars in the 15k range to downgrade to. I don't want to have to worry about reliability and repair costs.
So- what would you do??
Thanks in advance!
My approach was much more drastic when we hit the financial bottom. We weren't paying $730 a month for a car (what are you driving, a Ferrari? $730 isn't a car payment, it's a house payment), but we were upside down on our car about the same amount. I literally cut every expense that wasn't absolutely necessary. We went for 6 months without a phone, and over a year without cable. Between that and getting on the envelope system budget, we were able to save up enough to sell the car and pay the difference. That put us down to one car for a few months, which really sucked, but after a few months of biting the bullet we went and bought a $3000 car for cash. We haven't had a car payment since, and we won't have one ever again.
You're already at $2500 in savings, with another $500 you could buy out the difference on the loan and get rid of that HUMONGOUS stinking car payment.
That's true, but I still need a reliable vehicle for my 50 mile daily commute. I currently drive a Lexus hybrid that I bought brand new. We have about $1000 extra from our budget every month so I don't need or want to cut out phone or other services.
And to be clear- I have been making the payment and can continue to do so. I was just looking to possibly free up more funds. Unsure if it makes sense to trade in a car that I more than it's worth and will undoubtedly have a higher interest rate in a cheaper car
You are going to destroy that cars value very quickly commuting that much. Buy something cheaper that wont take as much of a hit. a 15K Honda Accord/Toyota Camry will service you just fine. Set some money a side for maintenance and repairs. All cars require this new, old or very old.
I was that guy as well...we sold everything. Currently we have a 2001 Jeep Cherokee (which is a beast by the way) and I am borrowing my dad's car until we get our mess cleaned up. We will buy a nicer car for cash when we are financially ready.
And to be clear- I have been making the payment and can continue to do so. I was just looking to possibly free up more funds. Unsure if it makes sense to trade in a car that I more than it's worth and will undoubtedly have a higher interest rate in a cheaper car
Being able to make the payments doesnt mean you can afford the car. Its probably a 45K car and your annual take home pay is 55K. That doesnt work.
What is your long-term plan? Personally, I would only buy an expensive luxury car once my long-term plan was in place, being adequately funded, and I still had excess funds.
At the time when I purchased the car, my long term plan was on track. I had plenty of savings and my 401k was in great shape. We made a bad business decision and that changed things drastically.
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