Debt $ense

My car - a 1998 Hyundai - is getting to the point where it will need to be replaced. Not nearing as in “pieces are falling off,” but I expect within the next two years I’ll trade it in for a newer car.

Not a new car, mind you. New cars lose about 20 percent of their value once you drive them off the lot, which makes them a pretty bad proposition unless you qualify for massive dealer incentives. (My dad used to qualify for military discounts, so he actually did OK with new cars.)

Used cars, especially “gently used” cars from leases are a much better bet than they were when I was a kid. The rise in certified pre-owned programs, and the general improvment in quality makes a used car much less risky than before. My car now is gently used; I bought it in 1999 with 12,000 miles on it for $8,500. At the time, I had to finance it for five years because I was a reporter at a weekly that paid peanuts, but it’s held up amazingly well.

My reasons for replacing the car in two years are that by then it will be 10 years old, and likely have about 135,000 miles, which is good service from a car that cost about $11K new. It’s a little car - the Accent - and doesn’t have cruise control or AWD/4WD, but it does get about 40 miles to the gallon on the highway. It was fine when I was doing lots of driving in traffic for work and had family members with minivans and SUVs nearby to help haul stuff. But now that I live in a rural area filled with hills, the lack of AWD/4WD is problematic, especially since I work more when we have bad weather. (Driving 40 miles to our back-up print site during a hurricane in order to get the paper out is interesting in a tiny car.) Not having cruise control means I waste more fuel than necessary driving to my parents and friends who live a couple hundred miles away. Not having room to carry anything longer than 4 feet is a pain in the neck, and will only become more so when I buy a house.

I researched cars, and the little Hyundai SUV, the Tucson, seems to fit my bill. It has great safety features, gets good gas milage (my friend Kyrie’s gets about 30 mpg), has a great warranty and will be on the market long enough that there should be a fair number of gently used ones available in 2008.

My other car goal? To pay cash. I might be able to do that with a used one; I’d have to get really lucky to do so with a new car. And if I’m close in spring 2008 and my car’s holding up well, I might wait a bit longer so I don’t have to finance at all. Not only will I save interest charges, I’ll know that from Day 1 it’s completely mine and I won’t have to write out a check (or set up an electronic debit) every month.

How, you ask, is a journalist going to pay cash for a reasonably new car? Well, I’m planning on putting all the money I now pay for debt into high-yield savings once the credit card is paid off, likely between $750 and $800 a month. Conservatively, that’s about 24 months to save. And that’s over and above the amount I’m saving now, which likely will increase slightly once the CC debt is gone. That will let me build up my emergency savings so all the debt money can go to replacing my car, and then later toward buying a house.
(The car’s actually a bigger priority than the house right now for reasons I won’t go into. Basically, there are some possibilities at work and in my personal life that could drastically alter the house equation, so I’m giving those time to evolve. The car needs won’t.)

The rest of my state tax refund arrived yesterday - $41.66. I also rolled $10 in quarters, $5 in dimes and another $1 in pennies. That brings my “found money” stash to $62.16, and I have until the last week in May to continue to add to that. I’m hoping to get at least $100 for an extra payment on my card. If nothing else, it will cover the interest for the month so all my weekly payments can go to paying off the balance. I’m toying with the idea of making a deposit this week of that money so I can get it on my card sooner, rather than waiting the few weeks and making a larger deposit. Thoughts?
I’m also waiting to hear back from my parks and rec contact about my class to see if I’ll get an extra payment from that. That probably wouldn’t come until early June, though.
I’m also looking for suggestions on ways to “find” money for extra payments. Not recurring sources, like dropping cable (did that two weeks ago), but the dollar-here, dollar-there type. If you have any useful tips to share, leave them in comments so we all can benefit.

I was reading a post from this week’s Carnival of Debt Reduction about motivation, and I figured I’d mention a few ways I manage to stay motivated.

1. I like seeing progress. When I log into my credit card account online each week and see a lower balance, it reminds me how great I’m going to feel once I’m not putting almost half my salary toward paying off debt.

2. To take advantage of that, I have an Excel spreadsheet set up that has each week’s payments, plus interest charges, new balance and weeks to pay it off. I spend a little time each week considering how I can increase the weekly payment, then running the number to see how much earlier I can pay the balance down. That also helped me decide that eliminating my United Way donation next year isn’t worth it - I’ll be fairly close to paying it off, so the extra $10 a week only cuts a week or two off - but that getting rid of internet at home might be, depending on how a couple things develop at work, including my annual evaluation/raise.

3. I pick up the free real estate section we publish every two weeks and look at houses. Planning to buy a house is ultimately what pushed me to get serious about paying off debt, and window shopping reminds me how good it will feel when I can finally pick up a copy and plan to buy one of the houses inside it. A new(er) car also is on my list, so I try and plan at least one route a week past the dealer.

4. I try and build in little indulgences that make the bigger sacrifices not so painful. For example, my cereal comes out of the dented bin at Kroger (89 cents a box last week!), but I splurge on Republic of Tea for my office tea collection so I’m not tempted to run out to one of the many downtown coffee shops.

5. My 401(k) balance is available online, and when it finally got higher than my student loan balance, I celebrated. It should be higher than my credit card balance by the end of next month, which is another benchmark to celebrate. And I’m looking forward to the end of the year, when my net worth should finally be positive.

6. I blog about my progress and keep one friend up to date. Knowing I have to publicly own up to backsliding makes me much less likely to do it.