2k down on a cheap car or put it towards cc debt?

Submitted by AreYouEvenWhite t3_1260nm6 in personalfinance

Hello, personal finance redditors. Question, I would love to have some help with. The transportation in my city is not the best, I'm currently looking for a better paying job but would need reliable transportation besides an hour n half bus ride one way. My insomnia won't work well with this. However, dropping that amount would also help my debt with the credit utilization. I wouldn't mind either, I can stick with my close to home job for a bit longer. However, paying the debt, are there any other benefits I could use to my advantage? Thanks for your time, lovely.

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Penguin_Doctor t1_je6xyx0 wrote

Depends on the interest rate of the debt and the price and rate of the car as well. Hard to offer a solution with no insight on your complete financial situation as well.

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AreYouEvenWhite OP t1_je71oub wrote

APR is 20% on a credit card. I have $3868 owed. At the beginning of the year, I had $5500. I was at 410 CS after my fallout, now at 520. The cars I looked at were around 5-7k in price. The rate range was 10-15%. Perhaps waiting for 600+ cs would be more beneficial for me? Soon, my CS will go up again significantly since consecutive payments and knockout of a collection.

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Penguin_Doctor t1_je7270m wrote

I would get rid of the cc debt asap. 20% is a whole lot worse than 10-15% (which is also absurd). Stay at your current job as long as you can and save up for the car you want. In that time, hopefully your credit score will be much higher as well and you can get a better rate. Assuming you won't buy a new car outright and will be financing regardless.

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AreYouEvenWhite OP t1_je73vor wrote

That sounds like a solid plan. I'm taking 10% of the amount I'm put down for car savings. I'll still have money in my checking, but it's for living situations. It really is absurd. After paying 80% of my balance, should I ask for a lower apr with creditor? I'm hoping as well, I did a calculator within my credit company to get an estimate when it was going up. It was close with estimation but higher than the estimate. I'll do another and see what outcomes I get from paying that much. Thanks for your help!

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Penguin_Doctor t1_je74xuw wrote

It'll probably serve you better to just pay over the minimum payment on the cc debt until it's entirely gone before going into more debt. I personally would avoid even going back into debt for a depreciating asset like a car unless absolutely necessary. Showing creditors you can handle debt responsibly is going to have a great effect on your credit score. Continuing to carry a balance and just restructuring your debt won't help you as much as just grinding out that payment while you're in a position to do so will.

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AreYouEvenWhite OP t1_je7czlb wrote

That's what I've been doing. The minimum is $130. I either do $200-400 biweekly. I've only previously done minimum for most of my life, falling in a loop. I picked up books, reading online to make changes to my day to day life to make these improvements. Depression also kept me from caring. Battled that for decades and won on my own last year in Oct 2022. Feb of 2023, I found myself no longer depressed. I see that's very interesting. Once I get there on lower credit limit. I will keep it low if I go over, I will pay it quickly.

Actually, I have a question for you once more. Since my limit is $5000. The car I'm getting is 6k. I have 3.5-4k saved up. Use some of my credit or get a loan? I'm not going this route unless it could be beneficial to my credit report with quick hefty payments.

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Penguin_Doctor t1_je7dk8g wrote

Are you saying your credit limit is $5000? To maintain a good credit score, your credit utilization should always be under 30%. This will improve your score. Anything higher will start to be detrimental. It's generally favorable to put as much down as you can. Not only for better rates, but lower minimum payments. Of course it depends on many factors.

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AreYouEvenWhite OP t1_je7dz1f wrote

Gotcha, I'll keep that in mind. Thanks for your help! Im use everything I learned here and work on that credit with focusing on the car later. Have a good one.

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Penguin_Doctor t1_je7ealy wrote

Absolutely. Also, do your own research as well. A random guy on reddit may not give the best financial advice. I was in your situation not too long ago, even similar debt amounts, and now I'm doing better than I ever have been. Goodluck!

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AreYouEvenWhite OP t1_je7hen6 wrote

Research has always been my life. Though, hearing others, especially reddit, has always been a big contribution to the knowledge I might've skipped.

I did some subtracting on my debt. Where I'm at now. When I drop $2000. I'll be $300 away from 30%. Next Friday will put me in the safe zone.

I'm glad you're doing better off! Keep it up on your end. We both got this. Believe it or not. I used to be 750+ score. That was years ago.

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Legitimate_Arm_8554 t1_je6wvo7 wrote

I’d wait on the car prices come down put the 2K towards debt

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AreYouEvenWhite OP t1_je6x893 wrote

That's also a good idea. Do you have an estimate on when the prices will fall? So I could save up for when it'll happen. I'll also do research on my end.

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Legitimate_Arm_8554 t1_je6xb3v wrote

I’m looking rn

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Legitimate_Arm_8554 t1_je6y7yi wrote

I read that people will start to buy new cars again due to the supply chain issues getting better so used cars prices will come down but consumer spending is hard to predict. Ikr not helpful but used cars u need to spend at least 7k in New York to get anything decent so that it passes inspection

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Aveah t1_je7hnvt wrote

I love this question! So let’s work through it! 2k down on a car, and you’ll have to finance the rest. The cost of cars you’re looking at, 5k/7k respectively, tells me it’s going to be a used, as-is, vehicle. Which is fine! No shame in the used car game! However, your CS is not good and banks know that. Financing a used car increases rates already (vs new).

So what they will do is increase your rate because you are considered high risk. They’ll want as much money upfront as they can get, because honestly, they are banking on you defaulting anyways. 10%15% is not good… I honestly think it will be even higher if you do get approved for financing. You will only find out the actual rate if you apply. Rates right now are high. I recently bought a new car, and I have excellent credit and income, ideal DTI as well. There was no way I could get my rate lower than 5%. My last car was 2.9% I’ll just have to refinance later when rates drop.

However, cars are not something you put money down on and pay your monthly car note and be good. Think bigger.

Insurance. Fuel. Repairs. Maintenance.

Insurance would have to be full coverage since it will be financed, the cost will be solely based on you, your history.

Fuel is going to be fairly expensive considering how far you mentioned you’ll drive. My fuel cost alone each week is about $40. And I live within 10 miles of my office. With an occasional shopping trip or grocery run. It’s always a sad day at the pump.

Repairs will sneak up on you and it’s so funny that they usually do when you’re broke! But used cars will need them. From previous experience, repairs happen more when I needed a reality check. And those can be pricey…

Let’s get to the end here, maintenance. Oil changes, tires, tune ups, car washes, wiper blades, etc. Even registration. Those are things you have to do and they aren’t free.

So let’s try to imagine the true cost of having a car with everything in consideration. In theory, you could put the 2k toward your debt, knock out the rest in just a few months because what you would spend monthly on a car (note, maintenance, insurance) can all go toward your debt instead. 😀

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AreYouEvenWhite OP t1_je7whu8 wrote

This was beautiful. Thanks for that. Worded to perfection. That is all very true too, however maintenance and repairs can be done by me. I picked up a 1k car and repaired it, but it needed an engine swap at the end. I've only put 1.5k to learn the majority. I know how to full-on rebuild minus engine swap. That was going to be expensive for a rebuilt title, so I didn't do it.

However, this is something very true. Insurance and gas will be eating at me, plus the sneak up registration. With the current debt I'll have. Tackling it all will put a heavy load on me mentally and physically since I'd probably pick up additional work.

I'll focus on the debt, not worrying too much about a car other than putting money away for it. When I can pay it off, my debt is only when I will focus on a car situation.

Thanks for this post. Have a lovely day!

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Aveah t1_jeaci3e wrote

You are most welcome! Your debt isn’t really that bad! It’s totally doable! Focus on the debt, establish a healthy financial relationship with credit, and don’t forget to invest in your future self! Good luck!

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