My car payments are too much! What should I do?
I've been struggling with a big financial dilemma for the past few months: whether or not to sell my car. I decided to take my question to three of my favotire personal finance bloggers.
Last August, I decided to purchase my first new car ever. I had only ever owned used (and entirely paid-for) vehicles prior to this. I researched the type of car that I wanted and settled on a 2007 Mazda3. It's a sexy little hatchback. It's sporty, zippy, and has all the trimmings. Problem is, it's busting my budget.
I got a decent base price on the car, but I fell for all the extras that the salesmen throw in at the end. You know, the extended warranty, the LoJack system. They kept showing me my monthly total (and not the grand total), and before I realized it, I was paying $3000 more for my car than I should have. I should note that this is pre-Wise Bread, so I wasn't nearly as wise as I am now. Ahem.
My payments aren't horrendous, and I have an excellent interest rate on the loan. But all together (insurance, gas, payments, upkeep), the car cfosts me about $600 per month. Everyone keeps telling me that $600 a month in transportation costs isn't that bad. But I can't stop thinking about how I could use that money every month to pay down my debt or contribute to my IRA.
Also, my car contributes to my laziness. It's an enabler. Having a car allows me to go anywhere, any time. While flexibility is nice, it's rarely necessary. I drive to the supermarket instead of walking. Hell, I drive to the closest mailbox instead of walking. I go to Target on a whim, buying stuff I don't need.
I'm thinking that if I didn't have a car, I wouldn't be so prone to spur-of-the-moment shopping, or runs to Safeway for blueberry sorbet in the middle of the night. I'd have to bike and bus to work. I have a motorcycle, so I can use that to get around if I need to go farther than a couple of miles, or go somewhere that Metro Transit doesn't cover. Also, the Flexcar program is increasingly popular in my area, and there's a pick-up location not too far from where I live.
Now, I know that I would still have to pay for that transportation, so the full $600 won't be going directly into a new money market account. I figure that, without the car, I could spend about $150 a month in transportation costs, max (I have a free bus pass, and my motorcycle gets great gas mileage). So I'd really only be putting away $450 per month.
My remaining balance on my car loan is just under 19K. My car is valued at about 19.5K. I decided to put the car up for sale to see if anyone wanted it. So far, I've had three people try to lowball me ("Yo, man, I'll give you 15K cash – here's my digits") and sales people try to help me list it on eBay. But I'm not getting a lot of bites. I tried lowering the price to 1K below the Kelly Blue Book value, but I'm still not getting much in the way of responses.
My questions to my favorite PF bloggers:
Should I just suck it up and continue making the payments? At the end of five years, I'd have my own car and not have to make payments anymore, so that's good. But on the other hand, I'd be paying well over 25K for something that I don't technically NEED.
Which is worse? To sell the car for less than it's worth, and thereby losing a couple of grand in payments that I'd still have to make to pay off the loan? Or keeping the car and paying all this money that could otherwise be going to shore up my finances?
Below is the advice that some very busy bloggers graciously offered me in response.
Leo Babuta, Zen Habits
"It sounds to me like you definitely want to get rid of the car ... so I would do it, assuming you can afford to pay for the difference between the loan principal and the selling price. You might be losing a few thousand dollars, but you will lose even more than that in interest over the course of the loan. The important factor here isn't financial, though, it's psychological: you want to be free of this
debt, and using the $450 per month on improving your financial situation, rather than spending it on something you don't need. And that is perfectly legitimate, and admirable in my opinion. As for surviving without a car ... many people have done it, it's better for your health, and better for the environment. Positives all around!"
Nina Smith, Queercents
Six hundred dollars per month is a boatload of money. How much money do you make each month? How much do you pay in rent? I’m not expecting an answer… I only ask to emphasize that your car expense is probably more than half of what you’re spending on housing per month. If you really love the car, then you could consider living in it like this college kid did to recover from his financial sins. His vehicle is a truck and a bit more suitable for sleeping. So even though most of us have found frugal uses for the backseat at some point in our cash-strapped lives, it’s probably not an option for you.
So by all means, sell the car! A car is a depreciating asset so it should be treated as a liability (which means the money spent on it isn’t working for you – it’s working for someone else). Liabilities bad! I drive a Volvo that’s paid for and seven years old. I certainly think (at my age and income) that I deserve to be driving an E class Mercedes, but it’s tricky to build wealth and buy assets, when you’re paying for the privilege of driving a fancy car.
By selling the sporty Mazda and taking a loss, you’ll lose on the front-end but you’ll be better off in the long run. Plus, you’ll be uber cool by going car-free.
Trent Hamm, The Simple Dollar
I'd continue making the payments and sell it later when you can get closer to book value. You've already made payments through the period where the car really depreciates - selling now is the equivalent of selling a stock at its low point.
So, what do you readers think about this predicament? Should I just deal? Should I sell the car at a loss, because I'll come out ahead in the long run?