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.)