‘Just typing this out was a good exercise in understanding how much we should prioritize paying off our debt’: I want to buy a $45k car, but should I really be yolo-ing my finances?

Hey Money Minder,

So, I’m currently battling with myself over buying this $45k car. I’m 31, married, with a 7-week-old baby. Our household income is around $220k (which is about x in USD) and my income is on the rise, expected to increase by $15k – $20k each year. After all our bills, we can save anywhere from $3k to $6k a month. We still have $400k left on our mortgage and $190k left on student loans, but no other debts hang over us. We’ve got $48k stashed away for emergencies that I’m definitely not touching for the car or to pay off debts.

Here’s the kicker – I’m planning to borrow $15k for the car after trading in our current one, and put down $10k. I’ve recently upped the ante by paying an extra $250 to $500 each month on our mortgage principal, but I haven’t really tackled those student loans yet, just making minimum payments. The student loans are in my wife’s name. We were thinking about going for loan forgiveness after 10 years of minimum payments since my wife works in education, but now with the baby, it’s uncertain if she’ll continue working for another 10 years as required for the loan forgiveness.

Putting it all out there makes me see the importance of prioritizing paying off our debts, but part of me just wants to go for it and buy that dream car I’ve been eyeing for years. Can you talk some sense into me, please?

Farewell,
Debt Dilemma Doc

Response from THE MONEY MINDER:

Hello There,

Congratulations on your recent addition to the family! It’s completely understandable that you’re contemplating a big purchase like a $45k car, especially with your increasing income and ability to save each month. However, it’s crucial to weigh the pros and cons of this decision.

Given your current financial situation, it might be more practical to prioritize paying off your existing debts, such as the $400k left on the mortgage and $190k on student loans. Aggressively paying down these debts can save you money in the long run by reducing interest payments. Additionally, considering your wife’s potential career change, it may be risky to rely on loan forgiveness after 10 years.

While the allure of yolo-ing and buying the car is strong, it’s essential to consider the long-term financial impact of this decision. Borrowing an additional $15k for the car could potentially add to your debt burden, especially at a time when you have the means to save a substantial amount each month.

I would recommend reevaluating your priorities and focusing on paying down your debts before making a significant purchase like a new car. Once you have reduced your debts and increased your savings, you can revisit the idea of buying the car without adding unnecessary financial strain. Remember, financial prudence now can lead to greater freedom and flexibility in the future.

Best of luck with your decision-making process and managing your finances effectively.

Farewell from THE MONEY MINDER.