Vanquishing My Debt

I'm 29 and trying to get a handle on my finances so that, one day, I can buy a home of my own. I've been reading personal finance blogs recently and decided to start one chronicling my own struggles and success (hopefully). I am lucky, considering the amounts of debt and tales of tragedy I've read about... but I am making some positive changes and moving in the right direction.

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Location: Los Angeles, CA

Monday, September 25, 2006

Woohoo! I'm finally not upside-down on my car loan!

And yes, I know, I will only be berated and thought of distastefully for having bought a new car... something I will never do again (I'll discuss after I share my excitement). But I'll take the beating in exchange for sharing my relief.

I was reading an article online and my curiousity was piqued about how close I am to not being upside-down on my loan. After plugging my car (a 2004 Toyota Rav4) and its condition (Good) into (the Kelly Bluebook website), the private party sale value is assessed at $18,975. If my car hadn't been attacked and scratched by a dog without a collar when I was stopped at a STOP sign (yup, scratch marks all over the driver's side door - man, was I pissed! But that's another story, eh?), the value might be a bit higher.

So I logged into my account with the finance company and found that my pay-off amount is $16,845.85. I know that this situation is atrocious, but I am still very happy that the value of my car is finally more than what I owe on it.

How did I end up with a new car while professing to be frugal? Well, it was before I discovered my interest in personal finance and becoming debt-free. Back in the days when I thought, "Everyone has credit card debt, it's no big deal." Ah, those carefree days of blissful ignorance.

Cue the flashback music...

Growing up, my mom and I always had crappy used cars and were always being taken advantage of by unscrupulous mechanics. About 6 or 7 years ago, she bought a brand new Kia Rio purely for the sense of security that a new car offers - the reasonable expectation that nothing major will go wrong with it anytime soon and the sense of "I'll take great care of it from the beginning, which saves me trouble and money in long-run." She also plans on keeping it for a long time until it's driven into the ground, as opposed to people that just like a new car every few years.

Two years ago I was driving a used Kia Sportage (bought from a dealership - again financed), and it completely died on me. I took good care of this car for the several years I had it, but suddenly there were a lot of major mechanical problems - several thousand dollars worth of repairs. I was prepared to fix it, especially since I still owed about $5,000 on the car. (And no, the 10 year Kia warranty didn't cover them because the car had changed ownership one too many times.)

My mom talked to me about the security of a new car and told me that these repairs were the first of many to come. How much money did I want to put into a dead horse? So I let myself be talked into buying a new car. It sounded even better after finding out I could use my old car as a trade-in instead of ponying up cash for a down payment.

I got a good interest rate on my loan since I have good credit, and the dealership accepted my old car, even though I didn't get much for it. But then I found out (duh!) that what I still owed would be rolled over into my new loan. What can I say, I didn't have any experience with loans and such - I guess I just thought that $5,000 would disappear in a puff of smoke, much like the car itself. Then sales taxes and fees were added into my loan total. All of a sudden I owed $26,000 on a brand new car I had to be talked in to. And that didn't even include the huge increase in car insurance I'd see for owning a brand new car!

Wow. I love my car, and it has been very good to me. I think I've been good to it, taking care of it and even babying it at times. But has it been $26,000 worth of good to me? At the time it was the easiest and smartest (ha!) thing to do. Now, not so much. And once again, following the old familiar story, the strongest of catalysts was that I had no savings to help me out of a crunch.

What can I say? I'm older and wiser and have seen the error of my ways. I'm plannng on driving this car into the ground, too, so it should last me a long time... barring any unforseeable circumstances.

On the bright side, this car loan has been added into our debt-free plan - so it should be completely paid off in early 2008, saving loads of interest charges.

Oy. Never again, I tell ya.

The story about the dog attacking my stopped car will have to be for another time... maybe Halloween. I am a cat person for a reason.


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