Rental Property Investor · Delaware City, DE · Member since 2019 · 11 posts · 1 vote
I am 20 years old and bought a new car last year not realizing at the time that it wasn’t the best idea because of the debt it has put me in. I am currently able to pay off the total balance but am having a hard time deciding whether I should pay the car off or invest the money into real estate instead and keep making payments. Any advice would be appreciated.
Rental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
7y
Looks like your transportation costs are almost 26% of your monthly income - and that’s JUST payment and insurance. That doesn’t include gas, maintenance, etc. This likely puts you closer to 30%-35%+.
To be blunt, it sounds like this car is a cash flow killer for you. I would strongly consider a different vehicle; maybe not a $2K beater as suggested, but something reliable, with lower insurance, and minimal, or in your case based upon the 11% interest rate, NO payment.
11% interest rate on a car loan says your credit profile isn’t where it needs to be.
I would read a few books and realize the impact of these early financial decisions. Set for Life by @Scott Trench is excellent, as mentioned. Your Money or Your Life by Vicki Robin is also a good one. Right now, in my opinion, you need to focus on financial education, eliminating that auto debt, building your credit profile, etc. Once you have all this in place, those reserves will serve you well but I wouldn’t be in a rush to invest cash while you’re paying 11% interest on a car loan. Not trying to be harsh. Hopefully this is helpful for you.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
7y
Sell the car, buy a $2000 beater to get around with. Read Set for Life by Scott Trench. Get your life in order by saving up more money, and then use your saved money for your first down payment. You're 20 years old. I know you want everything yesterday, everyone does. But invest the time you have no in learning the best-practice ways to do this, and you'll reap enormous, ever-growing benefits going forward. Success in REI is never about one big score. It's about working all the angles, year after year after year.
Rental Property Investor · DFW · Member since 2018 · 2 posts · 0 votes
7y
Kudos to you for thinking about this at age 20 instead of 30.
If you want general advice for your situation you can find plenty of that on this website just by looking around, reading articles, and browsing forums. And there are tons of other budgeting and investing blogs out there as well that you can go find. If you want some specific advice you’ll have to give more information on your situation.
Rental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
7y
Looks like your transportation costs are almost 26% of your monthly income - and that’s JUST payment and insurance. That doesn’t include gas, maintenance, etc. This likely puts you closer to 30%-35%+.
To be blunt, it sounds like this car is a cash flow killer for you. I would strongly consider a different vehicle; maybe not a $2K beater as suggested, but something reliable, with lower insurance, and minimal, or in your case based upon the 11% interest rate, NO payment.
11% interest rate on a car loan says your credit profile isn’t where it needs to be.
I would read a few books and realize the impact of these early financial decisions. Set for Life by @Scott Trench is excellent, as mentioned. Your Money or Your Life by Vicki Robin is also a good one. Right now, in my opinion, you need to focus on financial education, eliminating that auto debt, building your credit profile, etc. Once you have all this in place, those reserves will serve you well but I wouldn’t be in a rush to invest cash while you’re paying 11% interest on a car loan. Not trying to be harsh. Hopefully this is helpful for you.
@Cameron Fosters as young as you are get rid of the car payment. I’m 44 and now just getting into investing. It’s hard to save for the first down payment on an investment when you got a family to support and have to have something better than a beater. Sacrifice the car now and start investing. Later you can let your investments buy you even nicer cars
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y
Your options are to sell the car and downsize but based on your age and credit you are going to get a similar rate of 11% or buy the next car cash. Your balance is $13k. You could just pay it off if you have the money now. You will automatically get an 11% return. Where in the world can you get that with zero risks? Hint you can't.
You got the car already why go through the drama of selling it $13k is little money. Pay it off and now you don't have to worry about the payment. You are 20 don't worry about getting a property today. You can have enough saved in the next couple of years and be well ahead of the game. Lesson learned here and don't repeat it. Lucky in this case you bought a lower-priced car and not a brand new bimmer.
@Cameron Foster Find out how much you could get for the car and what it would cost for an older car where you just have 3rd party liability insurance (ie no replacement for the car). As you are a young guy, the insurance is going to be pricey. See if that makes sense.
If it makes more sense to keep the car, then try looking for ways to increase your income. The debt to income ratio is going to be key when trying to get a mortgage.