Color of Money Live: Readers weigh in on whether to repair or replace a car

Oct 24, 2019

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

Read Michelle's latest columns:
- When a breakup leaves you broke, this is how to get back on your feet
- Repair or replace: Here’s a rule of thumb for when it’s time to break up with your old car.

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So glad you could join me today. 

As always, I welcome your Thursday Testimonies. Have you paid off any debt, met a savings goal? If so, please share your story and inspire others. 

So, let's get started. 

Hi Michelle, I sent you a thank you email 2.5 years ago as I was just starting a divorce process and getting out from under my ex husband's having accumulated a ton of debt (in my name), trashing our house and it heading to foreclosure, and more. TODAY - I made a transfer into my savings account and it now tops $10k! All my debts are paid off and I sold the house (short sale, avoided foreclosure). Next steps, keep building the savings, reinvest in my 401(k) and start college savings for my kindergartners. Thank you so much for advice and support. Your heartfelt reply to me when I was in the midst of the worst meant so much. Kate

Kate, whew! I get so much mail I was afraid I hadn't been able to respond to you but glad I could help. And thank you for coming back and sharing how you've come from out under that dark time. 

Clearly you've been working hard to recover. 

Definitely get back on track for retirement savings and may I suggest you set up 529 plans for the children. 

Here's some background to help with the college fund: 529 plans can help you save for college, so let’s get started with the basics

Good Afternoon, I hope that you get to me but here goes. My ex-husband and I finalized our divorce in September of this year. I am embarrassed to say that I allowed him to accumulate a ridiculous amount of debt in my name (Almost $30,000 in credit card debt alone) Our settlement has him paying approximately $500 a month but it barely covers the interest. I have been paying as well but the balance just does not go down and I also have other expenses that he left me with since it was in my name. I feel especially silly because I am an accountant and know better. My credit has taken a hit because of this (now 654) and I just can't see out of it. Everyone normally has success stories when they write to you but any advice for starting over and climbing out of debt?

I'm so sorry about this situation. And trust me there are a lot of folks who are struggling too for any number of reasons. You are not alone, even as a financial professional. 

And knowing better doesn't mean you don't let your love or heart lead instead of your head. Marriage means trusting and that's what you did. No shame in that at all!

Unless you are going to need to borrow soon, don't worry much about your credit right now. Concentrate on recovering financially and emotionally, more the latter. 

The way you see out of it is to take each day as is. You've lost so much more than a husband. Take care of your mental health and the money stuff will get better. Yes, it may take time but that's okay. Really. Truly.

When you can, try to pay more on the credit cards. And if you haven't already call the lenders and see if you can get them to lower the interest rate or even knock it down altogether so you can get some traction. You would be surprised by how many people do this and get relief. 

If you've done that already, just be patient. This too shall pass. 

Read: When a breakup leaves you broke, this is how to get back on your feet

(She/26/DC) I'm a federal employee and have been approved to receive a $10k payment from my agency through the Student Loan Repayment Program, and I am hoping to get advice on how to most effectively use this benefit. For context, I have 8 loans, two of which are over $20k (interest rates are 5.59% and 5.06%). The remaining 6 range from $2k-$5k with 3.6-5% interest rates. This lump sum payment can make a serious dent in my largest, highest interest rate loan, or it could pay off 2-3 of the smallest, lowest interest rate loans. I see 4 possible strategies: 1) use SLRP and extra payments on largest loan; 2) use SLRP on largest loan but make extra payments on smallest loan; 3) use SLRP and extra payments on smallest loans; 4) use SLRP on smallest loans but make extra payments on the largest one. I'm torn because it would be great to pay off at least two loans, but the big loans are about 2/3 of my minimum monthly payment and it's almost entirely interest so I'm barely scratching the principal balance. Do I go for the instant gratification of a $0 balance or maximized savings on interest?

I see this all the time. People have taken out student loans throughout their college career ending up with several loans to manage. 

I advocate my own "debt dash method" or the "snowball" method recommended by financial guru Dave Ramsey.

Both are the same and involves listing all your debts starting with the one with the lowest balance. The goal is to knock off the smaller debts first and quickly. This helps you quickly experience a triumph. In my experience and some studies have shown the debt dash/snowball method doesn't cost you more because you aren't concentrating on the debts with the highest interest. In fact, people often become so encouraged they double down on their debt payoff efforts also quickly eliminating their debt. 

So, I suggest you take the $10k and pay off completely as many of the student loans that you can. Then take whatever extra money you can find in your budget and attack the next debt on the list while making the minimal payments on the other loans. And I mean really go at that debt with all the financial gusto you can manage. You'll see, you will be out of debt before you know it. 

Read: Debt Dash Method

(It focuses on credit cards but can apply to any outstanding debt, including student loans).

I just paid off my student loan this week, 7 .5 yrs early! I just wanted to thank you and your chatters for sharing their stories to keep me motivated the past couple years! For anyone wondering how: I know not everyone is in a position to make extra payments, but if you can, it adds up. After I established an emergency fund, I started throwing anything I could at the student loan. I saw it as something I actively needed to get out of my life, so it made it easier to pass up on spending cash I could put towards the loan. Then this month I had an 'extra' paycheck, and used that to pay off the remaining balance. (I gt paid every 2 weeks=26 paychecks a year, but I have my budget set up based on 2 paychecks a month, so twice a year i end up with an extra paycheck). I feel like I just vanquished a foe. Thanks for letting me boast and do a happy dance in my head. And again, thank you so much for your advice! (she/her, Seattle area)

I'm doing the happy dance too. And what great timing for your testimony given my answer to the previous question. 

Paying off student loans early can be done!

I'm so happy for you and thanks for sharing. You just made my day! 

P.S. Now take all that money you were putting toward the student loans and boost your emergency fund, life happens fund and/or retirement savings. 

 

Michelle, a couple weeks ago you mentioned you were trying to talk your husband into paying off your mortgage early, and mentioned "59 1/2" as being the magic age. I'm guessing you meant that you want him to take a large slice from his TSP at that age and pay off your mortgage. Speaking as another retired Fed, now nearly 70, and a TSP millionaire, may I say "Don't do that!!" Your husband is right on this one. Keep paying extra, same as you are now, from current income, but let that TSP ride. You will never find a cheaper way to invest. Your 70-year-old selves will be very, very grateful to your 60-year-old selves that you can have greater income when you might really need it.

Have you been having secret conversations with my hubby? 

He made this exact case. And I listened. He and you are right. 

I just can't STAND that debt and want it GONE. 

But, we are staying on the current path of using current income to make extra payments on our mortgage every month. We are getting closer every year to getting rid of it super early and before we retire.

I just have to be patient. It's hard but you are right. 

In the last week, my tire has gotten a leak; the pipes under my kitchen sink started leaking; and one of our light fixtures FELL, messing up wiring and needing to be replaced. In other words, I've paid a mechanic, a plumber, and an electrician. I also almost had to pay a dishwasher repair person...escaped that one, luckily. I'm really grateful we set aside some money in a "life happens" fund because when life happens, it always seems to happen at once -- having the money set aside made things a lot less painful!

For those who don't know, I recommend you have an emergency fund for like when you lose your job -- or when the politicians shut down the federal government. But to keep robbing your emergency fund, you need a "life happens fund" for the things in life that happen such as needing to fix a tire, sink and light fixture (WOW!).

It's okay if you are constantly dipping into the life happens fund because that's it's job. 

Read: Unsure what money to save and what to invest? Here’s the answer.

You've never explained WHY you feel so strongly about debt, even after you acknowledge that maintaining a low-interest debt so you can invest more for higher returns can be a smart strategy. Debt isn't always bad. Did a credit card scare you when you were a baby, or what?

Oh, you newbie to Michelle's money mind.

I have explained many, many times why I hate debt.

But before I do again, let me be clear.  I'm not maintaining try low-interest mortgage (2.75%/15-year loan). My husband and I are aggressively paying it down. I do not maintain any debt to invest. We are paying off the only debt we have in addition to investing for retirement and our children's college funds. 

Why do I hate debt and would slap it if it were a person: 

Debt limits your choices. 

Debt is like a monkey on your back. And I don't know about you but I don't want anything pounding on my back.

Debt can stress you out when you have a disruption in your income. If you lose your job or your kid gets sick and you have little to no debt you can weather that storm a bit better. 

I do not want to normalize being in debt. It's not normal. It's not good -ever! 

If you want to know more about my feelings on the matter read these columns: 

Yes, all debt is bad debt

Debt: Smack it or hug it? My debate with Michelle Singletary

Don’t keep debt around like it’s a Pet Rock

 

From your column today: "The average loan was $32,590....after a down payment of $3,991" Do people really pay $37K on AVERAGE? I don't own a car (yup, biased here), but I helped my dad buy a new car recently. It is the nicest car he has ever owned - a Subaru Forester. It was $25K. What are people buying for 50% more on average?!

They do, many pay even more. 

And they can because they are stretching the payments over 6,7 and 8 years. 

If you need a car loan of more than 48 months, you cannot afford that car. 

Read: Repair or replace: Here’s a rule of thumb for when it’s time to break up with your old car.

I am jealous of the previous poster. Despite that my work benefits many, I regret joining my agency after law school. Not only am I now pigeon-holed with non-transferable skills, in a non-promotable position, but my agency does not participate in SLRP. My only hope was PSLF, which was denied. Future lawyers: if you are going to join the govt, make sure that your target agency participates in the SLRP, and that it includes lawyers in the SLRP.

I'm so sorry you are not happy in your job. Also, Congress did set aside funds for folks who were denied PSLF. Check out if you can still get loan forgiveness.

If not, don't spend your life in a job you hate. I would move even if it means paying off all the loans yourself. 

Time is too precious. 

Read: 

Student debt forgiveness isn’t worth a toxic workplace

Seeking forgiveness: The dizzying journey for public servants with student debt

I have over a million dollars in my Brokerage acct. I rarely hear from my broker and he has me in different mutual diversified funds which haven’t made a lot of money. Does he get an ongoing bonus having my acct whether it makes money or not?

I'm not sure how your broker is compensated. You would have to review your account with him to see. But if you are unhappy with his attention to your needs and your account look for another broker. Don't stay where you aren't getting what you need. 

I have a 12+ year old car that I maintain well and plan to keep as long as I can. It's never left me stranded, but I have to say, the FIRST time that happened I'd start shopping around. Your time with your family lost and money you didn't earn while dealing with it are valuable too, let alone the stress you've put yourself through. Life is too short to be stranded by the side of the road THREE TIMES!

Okay, so your rule of thumb is one. I like to give some grace to the car because it's just so much cheaper NOT to have a car loan or put out a lot of money when the car can be repaired. I set three as the limit so that I wouldn't overreact to a breakdown. I try not to let fear or emotions dictate my financial decisions. 

For example, what if I had kick the car to the curb a year ago when I was stranded that ONE time? It's been a year since anything else like that has happened. 

Our Honda Odyssey is 10 years old with 105,000 miles. It's running well (in the shop for timing belt and brakes today) but nothing else wrong. Spouse wants to start looking at new cars since tired of diving a minivan and new cars have new features (safety and entertainment). We have more than enough money in the bank to buy a car in cash (and have a good cushion/fund) but I don't want to "waste" the money on getting rid of a car that has had no problems and runs perfectly. Help please. :)

I'm right there with you. We have the money to purchase a new to us/used vehicle. And my spouse is pressing me too. to upgrade.  I'm trying to hold out. I'll let you know who caves. 

For me, the repair/replace question comes down to whether I feel safe driving the car. There are a few other factors in the equation, such as convenience of dealership for service, and whether there's been some new safety feature that I really want (e.g. backup camera). But it really comes down to whether I can rely upon my car to take me where I need to go safely, or am I going to worry about getting there. Because, face it, unless you're trading in a Jaguar for a Kia, it's always going to be more costly to replace than repair.

Agreed. My three-rule breakdown is a guideline. But like you if I'm getting scared it won't start, it's gone. Gone. Peace of mine is worth the money. 

I could have been the poster last week who asked about renting vs. buying in her 50s. I've been struggling with the same question, living in a neighborhood I love with rent control, but where I could never afford to buy. Thank you for your response. I felt like it gave me permission to let got of that "must buy" nagging voice in my head. Now going to focus again on living my own life, loving where I live, and building financial security in ways that make sense to me. Burden eased!

Glad to ease your burden!

Another possible reason - I'm waiting until a hybrid or electric version of my car is available.

That's a good reason. 

Change! My broker emails me every time there is a big market change, every couple of months to check in and responds immediately whenever I have a (dumb) question. You are not getting your money's worth!

Yup, change!

Maybe a silly question, but with so much emphasis on saving, I’m really struggling with making decisions on how to spend. Context is that my spouse and I have been saving for our first home for two years now and have saved enough for about a 12% down payment plus closing costs. We have emergency, life happens and retirement savings covered, plus cash saved for an upcoming car purchase and a decent investment nest egg that we don’t plan to touch. We are expecting our first child in the spring so have put the house hunt on hold until we have more clarity on our long term needs and expenses (we will be adding a 529 payment soon). Our goal over the past two years has been to throw all extra money into our house savings, but now I need to start diverting that to future baby needs, in addition to shopping for baby/apartment items and maternity clothes that may not be 100% necessary but that we can afford and would make our lives a lot easier and more comfortable. I can’t figure out how to prioritize. Should I pick an arbitrary number as a budget for these items? Make a full list of what I expect to need and then try to spread the costs out over several months? Decide that if we’re meeting our savings goals, I can feel free to spend the extra money in our budget however we want? Help!

First, congrats on the baby. How wonderful. Got three. Glad they are out of the house -- but loved it when they were here.

So, breathe. You got this.

I might wait on the house until you do get a handle on the new baby expenses. Plus, it's possible you or your spouse/partner may want to stay home longer with the baby if you both are working. 

For now, start acting as if the baby is already here. Will the baby be in daycare and if so, how much do you expect to pay. Then take that money from your budget and put it in a savings account along with the baby expenses. This will give you real world sense of how your current budget holds up with the extra expenses. If easily, then perhaps you are ready for the move. If not, and you feel very stressed, you may need that house money until the baby is school-aged. 

Also, don't rush and buy anything. There is so much temptation for baby stuff, much of which you won't need, including a lot of clothes. 

Keep me posted. Would love to hear how it's going. 

I didn't say I wasn't happy with my job. I have great coworkers, a great boss, an okay salary, and a very important mission. My complaint was more that agencies treat similarly situated employees differently, based on the agency.

Okay, wasn't clear. But it makes sense that different employers/agencies have different policies/benefits. 

We loved our 9 yr old odyssey and committed to keeping it by replacing timing belt and other maintenance over the summer. On the way home from vacation it broke down. Got it fixed and the same thing happened a month later. I told hubby I wasn't driving it another day and we replaced it the same day. We had done research earlier in the summer and knew what we wanted and what we could afford. We had cash in the bank so although unplanned, we were ready. Keep preaching it, Michelle!!

Actually, this is exactly what we are doing. I've already begun reaching what I would get should we decide to replace. 

A comment -- always purchase used cars; got a 2004 Camry about 6 years ago for about $4,000; wouldn't think of buying a new car and spending 5 times more.

Believe it or not, I don't agree with the always. We mostly buy used but have purchased new because the used versions we looked at didn't have what we wanted. But then again we paid cash and kept the cars for now 13 years and going. 

The market hit on value doesn't matter if you're keeping the car for a super long time. Depreciation on paper only. 

Plus we don't trade in our vehicles. We fix up and give to family members in need. 

(female, Virginia) Hi Michelle - My husband and I have spent the last decade following your slow and steady approach. Thanks to salary increases and careful spending (plus a hefty dose of luck, health and privilege), we're approaching 40 with good incomes, a manageable mortgage and funded life happens/emergency/retirement/529/car and home repair accounts. Retirement/529 are in target date funds, our 6mo emergency fund is in a money market, and our car/home accounts are in high-interest savings (we draw from them a few times a year). We're fortunate to still have a cash surplus...but aren't sure where to put that money. It's the first time that we've had cash not dedicated to an impending goal. Should it all go into the stock market? We invest a few hundred a month in a Vanguard total stock market fund but could up it to about $2500. We'll probably move in 8-10 years and expect to need $250k+ for a 20% down payment (thanks, Amazon...), but that's currently our only unfunded goal. Thanks so much for the work you do. "Michelle says..." is *the* way to win a financial disagreement in our home:)

If the next big expense is the home, I would juice up the home fund to the point of maybe, maybe not even needing a mortgage. That could me a combination of saving and investing the money since you have a long time horizon. 

I keep my cars for 10+ years and my rule of thumb for repair or replace is when you pay more money each month in car repairs than you would for a car payment, time to get a new car. If I am going to pay money, then at least it is for a safe car I can count on.

I can respect this rule. But save up to pay cash for the car - if you can.

See if there are neighborhood facebook groups that you can get on. People in ours practically give away baby stuff--some of the stuff has never been used because people buy so.much.stuff (including me! guilty!) Or look at the large Consignment Sales. It can be a nice way to focus on what is really important for you to buy new, while still getting what you need and being more environmentally and financially responsible.

Good tip. Thanks. 

We have a 13 year old car that we're hoping will make it another 2-7 years. Repairs under <$1000 are an easy call to keep it going. In the $1000-$3000 range, we make the repairs if it's clear that it should give us another year or so. But when it gets towards major repairs, say $5000+ or starts to become unsafe to drive on the highway, we'll replace it.

I do like this rule and not far off from my rule of thumb. Thanks.

Thanks for joining me today. Great discussion and questions. 

I read everything so don't feel like your time was wasted if I didn't answer your question. I often pull from this chat forum for future columns. 

See you next week. I'll be talking about estate planning because you will die. So, do you have a will? 

 

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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