Post # 1
DH and I have a sizeable debt but we’re getting to the point where there’s light at the end of the tunnel and 2 of our major monthly payments will be done in the next 6 months freeing up some money.
We disagree on what we should do with that money.
We both want to get our debt paid off and buy a house – that we agree on. Here’s the problem.
One of the payments that will be done soon is our car. It’s about $350 a month, the car was purchased brand new in 2010 (we got 0% financing – no brainer).
The car has about 125,000kms (77,800mi) on it. I do a lot of driving as part of my job and get reimbursed milage, all those mileage checks go in a separate account to cover all the maintenance on the car and any gas that goes above our normal tank a week that we budget for.
Once the car is paid for one of us thinks that the car payment amount (all or at least part) should go in the ‘car fund’ to cover the maintenance as the car is getting up there and things are getting more expensive and we should plan for that. The other thinks that we should take the money and just put it all against our other debts to get it paid faster and if a big car repair comes along just put it on a credit card.
The other option is to save to a specific amount and then put the money on debt and just keep the savings at the just in case balance – I just don’t know what that would be. (I did read somewhere that after 5 years the average car costs $150/month to maintain…that might have been at a garage, I’m not sure)
Savings account/car fund is a TFSA and earns about 2.5% – has an average balance of $1000 at any given time (sometimes more sometimes less depending on what we’ve just paid for)
What do you think we should do hive? I would also love to hear the reason for your choice!
Post # 2
Personally, I think it’s smarter to pay off debt then to put money away in savings. That also depends on the interest rate you are paying on said debt.
As well.. that figure , IMO, is way inflated. I have a much older car than you – at least 7 years older and in the 3 last years I’ve only had to change my brake pads (100) and the radiator blew (300) – this is other than oil changes.
(maybe you can split between the two ideas)… put some in a car fund and use the rest to pay of debt. Seems like an easy compromise to me.
Post # 3
I think id compromise and do 50% to car fund, 50% to debt.
Post # 4
i voted half savings/ half debt. I would do this until my savings could cover at least 3 months worth of expenses, then I would consider using 100% to pay off debt.
In practice, I kept splitting 50/50 even after I reached 3 months worth of expenses. It’s taken longer for me to pay off my student loans that way, but it worked for me.
Post # 5
I agree that paying off debt makes way more sense than savings. Around the same time as the car is paid off DH’s student loans will be paid off giving us another $500 a month to put on the debt (we’re already paying an awful lot). We’re also trying to set ourselves up so that we have emergency funds available so that when the debt is paid off we don’t have to go running back to credit to pay for things, we just don’t agree on how much we need. We have some low and some high interest debt – right now we’re doing minimums on the low and snowballing the high.
DH’s student loans are almost done and I can’t wait – he owed so much and that $500/month has been SO painful. The day that last payment comes out we’re going out to celebrate and I will do a giant happy dance. It will go such a long way to snowball off the rest of the debt.
Post # 6
- Wedding: May 2015 - Walnut Hill Bed & Breakfast
Have you needed any *big* repairs lately? Is the car reliable? Do you have any reason to think it’s suddenly going to go downhill? Do you take good care of it? Do you take it to the dealership (so expensive!!) or a smaller local shop? How much do you usually need to spend on repairs?
I have a 2010 MINI Cooper with 96,000 miles on it. Typically these cars are “problematic” but I’ve taken good care of it and haven’t had any big issues. Certainly no repairs over $1,000 – just basic wear and tear items. I also have a 2001 Honda Civic with 114,000 miles on it. Which I’ve also been lucky with – but it is starting to show it’s age in terms of rust (thanks, pennsylvania winters!) which needed to be patched this past summer – but since I only drive this car in the winter and don’t care that much how it looks, I didn’t put the money into it to have it done “pretty”.
I think it’s really important and will save you tons of money in the long run to pay off your debt first. Maybe put $50/mo into your car fund and $300/mo towards to debt. If you need to use the car fund for a repair, then use the $350 to replenish back to your usual $1,000. Then switch back to the $50/$300 split.
Post # 7
I agree with PPs and would do half car fund/half debt. That way there won’t be resentment down the road and at least something is going towards debt. It’s rare that a savings account will haveyou gaining more interest than you’re paying on your debt (although it depends what your interest rate on the debt is) so putting extra towards your debt will help save you money on interest over time. Plus, I think that car maintenance number is pretty inflated. Our car is a 2007 Mazda3 (we got it in 2012) and it currently has 134,000-ish kms on it. Other than oil changes and winter tires we’ve only had to get a new battery and brake pads. I think it’s safe not to put the full amount into the car fund (:
ETA: I’m sure having the student loans paid off will feel so amazing! Definitely a cause for celebration! I’m working on paying off my OSAP and I’m definitely going to celebrate once that’s all paid off 😀
Post # 8
The car is well maintained. We do get it dealer serviced but here in Ontario labour etc is regulated so it costs pretty much the same everywhere unless you know someone (and we don’t).
It’s a Mazda3, we haven’t had any major issues. We did just have to get a new battery and spark plugs. We’ve had the brakes done once or twice (I can’t remember).
We will need new tires very soon – our all seasons are almost toast (we have winter tires on now) and that will be expensive.
Post # 9
I would build up a safety net of about 3 months expenses to use as an emergency fund (which would also cover car repairs) and then put it all on student loan debt. If you feel that a compromise would be best, I would do 70 student loan/ 30 savings.
I’m not sure who told you that cars over 5 years old require $150/month in maintenance but that is absolutely nuts. My car is 10 years old and has maybe only required like two things other than oil change in the entire time I’ve had it.
Post # 10
I think that I would do something like (considering the entire $850/mth you will have in a few months)
$100 towards the new car/car repair fund
$100 towards the house fun/ longer term savings/ just in case fund
$650 towards the rest of the bills (CC or whatever other debts)
(in the short term until the $500 is available I would probably do $100 to the car fund and $250 to the bills)
likely your credit cards are like 20% interest or so and getting back 2.5% is nothing compared to paying that out so I would start to build up a savings (just so you don’t have to run to a CC for every little mishap) but I would mainly concentrate on wiping out those bills
Post # 11
My loans are so much smaller than DH’s. Once the high interest stuff is paid off then we’ll pay my SLs and then DH’s PLC (the lowest interest rate of everything). I had a 2002 Protege before and it had over 200,000kms on it when it rusted out but I had to do some fairly major repairs on it around the 180km mark (i did buy it used from what I found out later was a less than reputable dealership, so I don’t know what the maintenance history on it was).
we have a separate small emergency fund that we keep just in case we run short on cash one month for some reason – we put about $100 a month in that as a just in case but we try not to touch it.
Post # 12
I agree with PP’s…I would put the majority onto the existing debt and probably $100 into a ‘car repair’ fund.
Post # 13
If the debt you would be paying off is credit card, I’d put all the money towards that. That way you’re definitely paying off the credit card debt you already have with only the small risk that something goes wrong and you’ll have to take some of that credit card debt back. However, if the debt that you would be paying off is student loans, I’d split it 50/50 until the money in the car fund reaches a certain amount ($1000-$2500?) and then dump it all into debt.
Post # 14
I love all the replies. Originally, I had planned to put it all towards debt and DH wanted it all in savings for repairs/a new car. We have since shifted. Now I think we should do part in savings until we have a healthy emergency repair fund with 200-250 going towards debt. DH now thinks it should all go towards debt.
I think what the plan will be is that $150/month will go into the car repair account – whatever my mileage check is and then the difference until we get $1500 in there. Once there’s $1500 we’ll put all the car payment towards debt and just my mileage checks go in the savings (we agreed from day one that the mileage goes in that account and it’s not used for anything except the car). If the account dips below $1500 we’ll top it back up again.
Post # 15
I’m a big believer in the (at least) 3 month emergency fund. Without it, minor inconveniences (new winter tires in Canada are $$$$$) become emergencies and misfortunes (your company announces a big round of lay-offs) become major crises.
If you already have that, then I’d put 100% into debt repayment. I wouldn’t bother with a separate car fund and emergency fund.