What would you do?

Lukas239

Apologies if this is in the wrong place, relative newb.

Just wanted to seek some opinions and perspectives on my current situation. Some background in as few words as possible;

- Desperate to be debt free after graduating uni and starting my career.
- have reduced ~11k of debt down to 4.7k in 20 months.
- Have enough saved to pay off the debt completely but this will leave me with little to no savings.
- Interest rate on the remaining debt is 3.2% equalling £252 worth of interest if not overpaid.
- Need a new car by december (current is barely drivable and needs more than its value to pass MOT)

Now the philosophical bit; i'm an inherently sensible and risk-averse person. I don't drink a great deal, i don't smoke, i don't really do shiny things but i love my cars and motorbikes. Right now is arguably the best chance i have financially to buy a car i want/like. Clearly i can't pay off my debt & buy a car i want.

So in as few words; what would you do? The sensible pay off debt and rebuild savings, all the while running a junker. Or accept the debt is small relative to my income and very low interest, allowing me to buy a car with savings (+/- with additional personal loan for a small portion of the car).

Any help/thought processes greatly appreciated

Willing2Learn

If it were me, I would spend £1,000 of my savings in December toward another run-around motor. At the rate you are managing to save you should be able to afford something much better in a year or two. And you would be able to do it whilst being debt free.

enthusiasticsaver

The sensible thing would be to get rid of the debt and buy a car which is affordable for now. If you have saved up £16k in 20 months you should have enough saved in less than a year to buy a higher value car with no loan.

theoretica

I suggest you look ahead at how long you will probably have the car you buy and ensure you will have enough saved to buy its replacement. So plan to pay off your remaining debt and any you take out for the new car and save for the next one in however long this car lasts you.

sourcrates

You can actually have an older, cheaper car, that is still quite flash, for example, an Audi TT, original model, good examples can be found for £500 upwards, £1500 buys a real nice example, engineering wise they are fairly bombproof, aluminium body, so no rust, newer cars your really wasting your cash, if your careful you can have the best of both worlds.

JayRitchie

It depends. Do you need a car to get to work? What happens if your car breaks down? What is your job/ career and how secure is it?

Most of the time - putting the car to one side - I wouldn't recommend putting all your savings against debt when the debt is only costing 3.2%. Its better to spend a small amount on interest and have a decent emergency fund for most people.

EssexHebridean

I'm going to hedge my bets here

Assuming you are currently renting, rather than paying a mortgage, then a basic emergency fund would be around £500 - so set this aside apart from all other calculations.

You've said that this is arguably your best time to buy the sort of car you want - but all things considered I'm not sure *why* you're saying this? A point where you have debt is pretty much never a good time to decide to take on more debt.

What we don't know from your post is how much you're currently paying as standard against the debts - remember the more debts you clear, the more disposable income you have to then start to save for a car.

If it were me, I'd look to spend £1500 - £2k absolutely top limit on a car for now. It might not impress your mates, or turn heads as you driving it down the road, but it *will* get you from a - b and not cost you an absolutely fortune for a few years. I'd then throw the rest - all bar that £500 we talked about at the start - against the debt - clearing off whatever is costing you the most in interest first. I'd then throw everything that's spare - including the money you've previously been saving - to get shot of the rest of the debt. Realistically that will happen in months rather than years.

Once the debt has gone, you can then start rebuilding your savings pot again. Again, if it were me, I'd be throwing 50% of my surplus to a "Full emergency fund" - aiming eventually for 3 - 6 months of basic expenses plus a bit on top for contingencies. the other 50% I'd be sticking in another pot - possibly a regular saver if your bank account has a linked one, failing that the best value fixed rate you can find - you're not going to need that money until you've saved up a fair bit more, so having it locked in isn't an issue.

Final thing I will say - DON'T be tempted to buy a brand new car - they are truly appalling value unless you're planning on keeping them for a long, long time. I'm guessing that applies all the more if it's a medium/higher end car you're looking at. Think about what you want, and the mileage/age you'd be happy with, and then look online to see what sort of money you need to set your target at to get what you'd like - but don't be afraid to make a compromise here and there to get better value, particularly if you're the sort of person who will change it again in a few years anyway.

All of the above also comes with the rider to make sure that you're budgeting for everything that you need to be as you go along - clothes, car maintenance, christmas & birthday presents, haircuts etc. Also start to look to pay car insurance and road tax annually, rather than monthly as there are savings to be made there, too.

Unicorn_cottage

How much do you want to spend on the car and why do you need it for December? Are you earning money now?

Lukas239

thank you for your input so far. Forgive me as there's some information missing here which might assist;

- home owner with a mortgage.
- my savings currently equates to more than 6 months of expenses.
- Don't need a new car by december, it just seems unnecessary to pay to repair a car i detest and is at the end of its life. I'm well aware that statistically it is almost always more economical to repair the vehicle you own vs buy a new one.
- I will never buy a new car. Have always bought used with cash up front.
- pay all yearly costs up front, nothing monthly (car insurance, tax etc). only monthly cost i have is a mobile contract.

I think ultimately this is a philosophical question only i can answer but wanted to see how others thought through the process. I'm in a stage in life others (including financial advisors) would refer to as 'adult, no kids', essentially identifying little to no financial dependents.

My current car is causing me physical problems (raging sciatica). I'm very happy to buy an old second hand car for cash (i like the idea of hunting down a used bargain), but i've never bought what might be considered a 'nice car'. Make no mistake this is a decision for me, by me - i am not a victim of keeping up with the joneses - i want a nice vehicle for myself, as i enjoy the ownership of something i care about rather than a white-goods thought process.

I understand to be rid of debt is the goal here, it's a matter of prioritising where to place savings and i appreciate people's input, definitely helps me think it through.

JayRitchie

I think it depends on how much what you think of as a nice car costs. £10k? £12k? £25k?

Plus whether you need to drive a lot and are dependent on a car.

getmore4less

.....
Have enough saved to pay off the debt completely but this will leave me with little to no savings.
......
home owner with a mortgage.
my savings currently equates to more than 6 months of expenses.

Effectively debt free apart from the mortgage but no real savings(they are currently borrowed at 3.2%)

I think you have the itch to spend the money you have not earned yet.

That is not that bad if the utility value of having something now is worth the extra costs that come with having to borrow the money and pay interest.

We don't have a problem with that when it is a house as that tends to be an appreciating asset and often cheaper than renting.

For a car things are different there is the utility value of it getting you places and convenience but once you start getting one that does more than that you are into discretionary spends.

There is nothing wrong with choosing to spend some of your discretionary spending on a nicer car, but make sure you have your budget sorted for the next few years and that money is really available and prioritized over the other options like, paying down the mortgage, moving house, holidays, going out etc.

But back to the net position.

You really don't have an emergency fund yet and certainly not a disaster fund if you lost your job you 6 months expenses is partially borrowed money.


When you say nice if that really means something sporty then you are looking at higher running cost. if you mean more modern,comfortable, gadgets, pick the right model and it could last a long time and not cost a lot more than trying to keep a banger going.

I should have let my 306 go a year or two before it cost over £1k in various repairs and maintenance.