Besides being a source of great dread for parents, having a teenage driver can also have a serious impact on parents’ budgets. Of course there is the obvious expense of buying that first car (hopefully a nice used one), but there are other significant expenses such as gas, maintenance, and most of all, insurance.

Car insurance for teenagers is often a deal breaker in many families. I remember when I started driving, my mom’s premiums went up significantly when she added me to her policy. Not because I was a fast-driving, irresponsible 16 year-old, but because I was a 16 year-old boy, and statistically, I was more likely to have a major accident.

We offset some of the costs because my first car was not necessarily a sexy choice – it was a 1985 Buick Century with silver faded paint. But, it had been my grandmother’s car and driven very little. It also had a big engine, and drove like a muscle car.

Fortunately, there are a few ways to save on car insurance for teenagers.

1. Buy a safe, reliable car not for looks, but for function. So many teens expect to see a brand new red sports car sitting in their driveway the morning they turn they 16. For most families, that is simply not realistic. What teens should hope for is a safe, reliable way to get from point A to point B. Besides, those shiny red sports cars often cost the most to insure.

2. Consider raising deductibles to offset an increase in premiums. There’s a big IF attached to this advice. Only increase deductibles IF you have an adequate emergency fund saved to easily cover the out-of-pocket expense of major repairs. If you are still paying off debt, or have yet to save a fully-funded emergency fund, it’s probably better to keep the deductible low and continue working towards your financial goals.

3. Sign up for a safe-driving course. Many insurers offer discounts to those who’ve successfully completed a safe-driving, or defensive-driving, course.

4. Keep your grades up. Many insurers also offer discounts for students who achieve and maintain a high grade point average.

5. Consider insuring your home, automobiles, and any other valuables with the same insurer. Insurance companies can often cover your home, your autos, and any other type of insurance required. Consumers can usually leverage some type of “multi-line” discount for having more than one type of insurance with the same company.

6. Add teens to your roadside assistance program. You will sleep better when kids head off to college, or off on a long road trip for their senior get away, if you know they have a quality roadside insurance plan. I’m partial to Allstate’s plan because you don’t have to have Allstate insurance to sign up, and you only pay for it when you use it. You can also register up to 5 drivers on your account (perfect for families with teen drivers).

You can sign up directly using the widget below if interested:

$50 Amazon Gift Card Giveaway

Now for the fun stuff. Allstate/Good Hands Roadside has donated one $50 Amazon gift card for me to give away to one lucky reader.

To enter, tell me what your first car was and feel free to share any memories of that first car. Leave the answer below in the comments section as your first, mandatory entry.

Bonus entries for extra chances to win:

2 entries

• Register for the program and comment that you registered (you may register directly using the widget above)
• Download the mobile app and comment that you downloaded it

1 entry

• Tweet about the giveaway and comment that you tweeted the following message, “Just entered the Allstate #ghrgiftcardgiveaway via @FrugalDad. Could win a $50 Amazon Gift Card. Your turn!”
• Share post to Facebook (through widget or copy and paste link) and comment that you shared it

Good luck!

No purchase necessary to enter or win. Odds of winning are not increased by a purchase.

Giveaway ends Monday, August 29, 2011 at 8:00 pm EST, and is open to US only. All entries must be properly recorded in the comments to count (i.e. Link to tweets, Facebook page, etc). Winner will be selected on August 31st, 2011. Winner will be notified via email and has 24 hours to respond. If winner does not respond, a new winner will be chosen and notified.

Disclosure: Allstate is providing the prizes for this program at no cost to me.  This program is not administered or sponsored by Allstate or its affiliates, but solely by me.

The thought of flying anywhere these days is most unappealing to me. The long lines, the invasive security, the crowded cabins in coach all combine to make for a pretty miserable experience. I’m much more comfortable in my own vehicle, and assuming I can reach a destination in a day or two’s drive, well, I’d rather just settle in for a drive.

Of course, driving long distances can be fraught with risks as well. Add in the oppressive heat wave gripping much of the country, and the strain on your car may be too much, leading to an inopportune breakdown in the worst possible spot.

I’ve always had a roadside assistance plan, since the days when my wife traveled several hundred miles to visit relatives after our first child was born, and unfortunately, I couldn’t go along. The plan provided some piece of mind that if she were to encounter trouble, help was just a cell phone call away.

One of the things I didn’t like about that plan, and still don’t, is that I have to pay a fee every month whether I take advantage of the plan or not. It’s kind of like having a gym membership and never using the gym!

That’s why I’ve been interested in the Good Hands Roadside Assistance plan offered by Allstate. Here are a few benefits of the plan:

You do not need to have Allstate insurance to use this service
You only pay when you use it; there are no monthly fees
Pre-registering for Good Hands Roadside Assistance provides faster service at time of need on the road. Those that pre-register will also receive a welcome kit in the mail containing a wallet card, key fob and window cling with the phone number for roadside help
You can register for up to 5 drivers on your account (perfect for families with teen drivers)

If interested, you can sign up directly below (after signing up, continue reading below for some additional tips for making a summer road trip safe):

In addition to a solid roadside assistance plan, it’s a good idea to stock your car with a few basic survival supplies specifically for the summer. Here’s a short list of things I always carry along:

• Water. I like to toss a 24-pack of water bottles in the trunk just before leaving. Sure, it adds a little weight to our vehicle, but if stranded in a hot climate, having some water on hand is vitally important.
• High-calorie snack bars. Again, if you are stranded, or have to wait a long time for help to arrive, it’s a good idea to have some snacks on hand. Avoid things like chocolate bars, which will become a melted mess in the summer heat. Stick to granola and peanut butter flavors.
• Ramen noodles. I occasionally survived on these in college, so I could do it again if I had to.
• Mirror. Great for signaling someone from long distances, especially a pilot looking for you from above.
• Paracord. Every good bug out bag should have some rope.
• First aid kit. Store everything from pain relievers, gloves, first aid tape, gauze, bandages, insect bite relief, etc.
• Survival knife/multi-tool. Great for cutting rope, opening cans, etc.
• Mess kit. Folding pans and pot can help make water safe, heat food, etc.
• Mylar blanket. Good for hot or cold climates. If you have to hunker down in your vehicle overnight and have no heat source, these blankets will come in handy for trapping body heat and keeping you warm.
• Flashlight. Don’t forget to toss in a spare set of batteries.
• Waterproof matches. For starting a small fire  for a heat source to cook food, make water safe, etc.
• Whistle. Again, great for getting rescuers’ attention if you found yourself in the ditch and not easily visible from the road. If injured, you may not have the energy to scream for help, but a blow on the whistle will travel a long way.
• Poncho. Nice for changing tires in a downpour – been there, done that.

These car “bug out bags” aren’t designed to live off for weeks, but should provide enough tools to help you stay safe until help arrives. Toss these contents in a spare backpack or small storage crate and safely store in your trunk, along with the usual auto emergency gear – jumper cables, an empty gas can, jack and lug wrench for changing the spare, and an auto fire extinguisher.

People have remarkably short memories when it comes to price changes. Retailers can attest to how quickly shoppers perceive sale prices as baselines, while a price increase must be sustained for quite some time before consumers shift their spending habits.

But the current rise in gas prices reawakened the memories of similar spikes in 2008 and has Americans considering long-term adaptations in addition to quick fixes like simply driving less.

Instead of opting for low-mileage giants that bear a strong resemblance to army tanks, many car buyers are considering hybrids instead. Soaring gas prices, combined with anticipated shortages following the March 11^th earthquake and tsunami in Japan, lifted demand just as production interruptions began to reverberate in America.

Car dealers see their hybrids flying off the lot, while selling used Priuses has become so lucrative that Toyota of Hollywood paid its employees a $500 finder’s fee for every Prius brought in.

Given the spike in Prius prices – used models sold for 30% more than the beginning of this year according to the National Automobile Dealers Association – and the admittedly fickle nature of gas prices, is a hybrid car still a solid investment?

New Prius vs. New Jetta

The Kelly Blue Book puts the fair purchase price of a 2011 Prius at $23,300, while that of a 2011 Volkswagen 4-door Jetta is $15,500. The Prius gets about 50 miles per gallon for both city and highway, while the Jetta gets 25 and 34mpg, respectively.

Setting aside the abstract benefits of owning a Prius, from saving the environment to establishing save-the-environment street cred, how long would it take to make up for the Prius premium?

We calculated the amount a consumer would spend on gas in a given year for different amounts of driving. By subtracting the amount spent with a Prius from that spent with a Jetta, we find the yearly savings on gas achieved with the hybrid.

Target: $7,800

Assumptions: Gas costs $4 a gallon, driving is split between city and highway

In order to make up for the Prius’ cost, the average American would have to hold the car for 3.5 years. Drivers keep their cars for just that long on average, so a Prius won’t save the typical driver any money even with the generous assumption that gas prices remain high throughout.

Used Prius vs. Used Jetta

Now we’ll compare the advantages of purchasing a 2006 Prius and Jetta, both with 200,000 miles, from a dealer. KBB puts the suggested retail price of the Prius at $11,500 and the Jetta at $8,000. Using the same assumptions as above, how long will it take to earn back the used Prius markup? The fuel efficiency of both cars is slightly lower: 48mpg in the city and 45 on the highway for the Prius, and 19 and 28mpg for the Jetta.

Target: $3,500

The savings on gas are realized much sooner with a used Prius than a new one, which may, in part, explain Toyota of Hollywood’s juicy finder’s fee. Assisted by a larger absolute decline in price and comparatively better fuel efficiency, the used Prius easily beats out the used Jetta within a year.

Other ways to save on gas

Buying a car simply to cut down on gas spending doesn’t make financial sense, so consumers who don’t plan to trade in their vehicles in the near future will have to find other ways to cope with high gas prices. Despite rising fares and schedule cuts, public transportation remains a viable option.

Gas credit cards and customer loyalty programs can shave off a few cents per gallon, and some gas stations charge lower prices for cash payments. Such strategies can help to ride out temporarily high gas prices without the significant cost of a new hybrid.

Editor’s Note: As has been pointed out in the comments below, I believe Tim made a mistake in citing 40,000 as the average number of miles driven in a year. That number is more likely to be in the 15,000 mile range.

If the thought of your teenager on the road fills you with dread, you are probably not alone. And if the prospect of texting teens behind the wheel isn’t chilling enough, there’s the financial aspect to consider as well.

It seems like kids go from this view to the real thing in a few seconds, not 16 years!

About ten years ago, I drove by a modest home on the morning of the local high school graduation. Out front, in the driveway was a brand new red sports car with a huge bow on top. The sight made me uneasy on many levels.

For starters: What message was this sending to the graduate? Could the family really afford that car? Who would make the payments? Would the car be wrapped around a tree by midnight?

Even though some people give flashy new cars to teenagers, most of us would think long and hard before doing so. A better approach might be to plan the purchase of a car with your teen, laying out ground rules for the selection, purchase, insurance, maintenance, and fueling of the vehicle. During the discussion, keep a few facts in mind:

Cars Can Kill

Think Safety First

An older Volvo station wagon may not thrill your teenager with its style, but it will stand up a lot better in a crash than a tinny compact car. Determine ahead of time what safety standards the car must have (crash rating, airbags, anti-lock brakes) and only look for models that meet the criteria.

Minimize the Insurance Whammy

There is a reason insurance companies charge teenagers more for insurance: they have more wrecks. A lot more. According to the CDC, “Per mile driven, teen drivers ages 16 to 19 are four times more likely than older drivers to crash.”

A MSN Money article  on insuring teen drivers warns that your auto insurance bill can rocket up by 50% to 200% when you add a teen driver to your policy. To trim costs, try the following:

• Talk to your agent— Find out how your insurance carrier assigns drivers to cars to ensure that the least expensive car is linked to your teen driver. Some policies let you assign the driver to each car, others assign the youngest driver to the most expensive car whether you like it or not. Shop for other car insurance (check out quotes at Esurance.com) policies if you cannot designate car/driver pairings yourself.

• Buy a beater— Some parents feel that new cars are safer, but new cars are generally more expensive to insure. Opt for a sturdy older model with a good safety rating.

• Stay low— Google “teen rollover accident” if you want a good scare. Teens tend to exceed the speed limit, and as a result may lose control and roll over. According to the US National Library of Medicine, “From 1999 to 2003 in the United States, fatal rollovers were significantly more likely per mile driven for teen drivers of both SUVs and pickups compared with passenger cars.” The website safeteendriving.org warns against the false sense of security an SUV provides, and offers an alternative: “When choosing a car for your teen, think late-model, large, and solid. Ideal choices include either station wagons or full-size sedans with small engines and air bags.”

• Hit the books— Some policies offer discounts to teens with good grades or discounts for teens who complete a driver’s education program. Check with your agent to take advantage of these programs.

• Jack up the deductible— Newly licensed drivers are likely to have accidents. By increasing your deductible you can lower your monthly premiums significantly, while accepting the likelihood you will have to pay for a few fender-benders along the way.

Get Buy-In

While most people agree that reducing dependence on foreign oil, limiting pollution, and minimizing environmental damage are worthy but somewhat abstract goals, the specter of $5-gallon gas represents a direct, personal attack on the wallet.

Obviously, one of the best ways to lower your gasoline consumption is to purchase the most fuel-efficient car on the market. But since not everyone can dash right out to the dealership and pick up the newest hybrid, it’s good to have a Plan B. For most of us, Plan B is to maximize the efficiency of the car we already own.

Tune Up and Save

Aging spark plugs, a dirty air filter, and over- or under-inflated tires can all dramatically affect your gas mileage—by as much as 25%. Stay on top of these simple maintenance issues to get the best fuel economy out of your car.

Run Gas Charges Through a Gas Rebate Card

I’m considering a switch to the Discover Open Road card. The card offers a $10 cash rebate on your first five fill-ups, a 0% intro purchase and balance transfer APR for the first 12 months, and has no annual fee.

Drive Smarter

Everyone has seen drivers who floor it when the light turns green, race to the next light, and then slam on the brakes. More than just annoying, these drivers are also wasteful. Driving at a steady pace (try cruise control on the highway) will optimize gas mileage.

Many people wonder which takes more gas: letting the car idle for a few minutes, or turning off and restarting the car. According to the California Energy Commission’s Consumer Energy Center, it’s better to kill the motor if you will be idling more than 30 seconds. So when you are in the drive-through or lined up to pick the kids up from school, it’s more energy-efficient to turn off the car.

Another simple way to chip away at your bill when gas prices increase is to unload the trunk. Many of us haul heavy things around such as tools, old car parts, or heavy work files that may not be strictly necessary. Unload all non-essential items from your trunk to get better gas mileage.

If you have more than one vehicle, compare fuel economy using the calculator found on The U.S. Department of Energy’s website www.fueleconomy.gov. A 10 mpg difference can add up to hundred of dollars over the course of the year. If you have a truly inefficient car, crunch the numbers and consider a trade-in for a more fuel-efficient model.

Drive Less

The easiest way to save money on gas is simply to drive less. Almost everyone can find a way to pare miles off the weekly mileage total. Ask your boss if you can telecommute one day a week, or work four ten-hour days instead of five eight-hour days.

If you can’t reduce your number of days on the road, try to reduce your commute time, by altering your starting and quitting time to beat the traffic. Fuel (and life force) wasted in rush-hour traffic really add up.

Many of us have become accustomed to hopping into the car to buy a coffee, drop off a video, or pick up one or two things from the grocery store. A better idea is to think like the old country farmer, who went to town once a week and did everything he needed at once. Reduce or eliminate frivolous trips and consolidate essential errands as much as possible.

One way to observe the effects of these changes real time is to install a gas mileage meter. Some newer cars and trucks offer real-time mileage calculations as part of an electronic vehicle messaging center, but those of us with older models may be interested in an after-market MPG meter.

Gas Station Tips

Don’t drive across town to buy gas for a few cents less per gallon. The gas you burn getting there will usually exceed the savings.

Would you believe dollar-cost averaging applies to buying gas? It seems that gas prices over an extended period will tend to be lowest on Wednesdays–so gas up on hump-day whenever you can.

Don’t let your gas go into thin air. An incompletely closed gas cap can allow your gas—and your money—to literally evaporate. Always close the cap properly.

These and many other gas-saving tips are available on the personal finance website GetRichSlowly.com and on ConsumerReports.org (video). Implementing fuel-efficiency practices is a smart move given current gas prices, and an even smarter move if prices start to soar towards $5 per gallon.

Ways to Save Money on Car Insurance

1. Shop around, and don’t be afraid to take your search online. Do a little comparison shopping by getting two or three quotes from multiple sources. Esurance.com is a great place to start your online search for a free quote.

2. Drop unnecessary coverage. Comprehensive or collision coverage for older vehicles may not make sense financially. Consider the annual cost to insure older vehicles compared to their potential sale value. It may be that it costs more to insure an older vehicle than it costs to replace one. On the other hand, if you have little savings, insurance may be a relatively inexpensive way to replace an asset worth a few thousand dollars.

3. Buy car insurance and homeowners insurance from the same provider. If you already have a homeowners policy in place, contact the insurer and ask if they offer auto insurance. Chances are you’ll receive a multi-policy discount for purchasing both from a single provider, helping you to save on car insurance and your homeowners policy.

4. Increase your deductible. I only recommend this step if you have an adequate emergency fund in place to cover the cost of the deductible. While raising your deductible can significantly reduce your premiums, the last thing you want to happen is to go into debt after an accident to cover repairs.

5. Inquire about other discounts. When discussing your policy quote with an insurer, specifically ask about any other discounts you may qualify for, such as low-mileage driving, the installation of car alarms or the successful completion of defensive-driving courses.

6. Look for group discounts. I received a small discount on my car insurance by signing up through a link provided by my credit union. The insurer partners with them to offer credit union members an opportunity to save through a group discount. Ask your employer, professional organization or financial institutions if they have any similar partnerships.

Keeping Auto Insurance Costs Low: Maintenance Mode

7. Maintain a clean driving record. One of the quickest ways to increase your car insurance costs is to have an accident or get a ticket for a moving violation. Tickets add points to your license and increase your insurance costs. Accidents increase your risk profile to current and potential insurers and increase premiums.

8. Clean up your credit report. Those not fond of the FICO score may find it objectionable that insurance companies use your score, in part, to determine your premium. However, statistics show a correlation between bad credit and a propensity to receive more tickets and be involved in a crash. Manage your money well and you are more likely to save on car insurance premiums.

9. Drive “low-profile” cars. That is, drive cars that are not typically a target for thieves or radar guns. Annual reports are available that list the most popular stolen cars each year. Studies have also show certain models and colors are more likely to be stopped for speeding (red sports cars, for instance). In their prime, the two cars shown above would have definitely been high-profile cars.

Saving money every month on car insurance is a quick way to make a significant reduction in your monthly expenses. Shopping around for quotes and making a few phone calls could be well worth the effort, so I’d encourage you to make this a priority.

In an article from Auto Blog posted just a few months ago, they cited increases in new car pricing, and the effect those prices are having on family finances.

A study by Comerica Bank shows that the average purchase price of a new vehicle went up $300 in the second quarter versus the Q1, bringing the average transaction price to $26,300. The upward swing in prices came at a time when the average household income remained stagnant. The average family needs 22.1 weeks of median family income to pay for their new vehicle purchase…

It’s true; cars typically represent one of the largest expenses in a household budget. Only housing costs the average family more each month. Factor in gas, maintenance, taxes, repairs and car insurance, and the cost of owning a car pushes even higher.

The most significant expense most people neglect to factor is depreciation.  New cars go down in value like a rock. Some new cars can lose as much as 20% of their original value when you drive it off the car lot. This quick depreciation, and the accelerated depreciation that often follows, leaves people owing much more in car loans than their car is worth.

If you find yourself in an upside down car loan, it is a safe bet your situation could be improved if you sell that “new” car and buy a much cheaper used one for your work commute. You may still owe money, but you’ll owe much less money, and that is almost always a good thing.

How to Get Out of An Upside Down Car Loan

1. The very first step to getting rid of an upside down car is to evaluate how much your current car is worth. Using sites like Kelley Blue Book and Edmunds, try to determine the amount of your current car’s private sale value (not trade-in, which is often much lower). Be sure to be honest about the condition of your car, and enter the exact mileage to get a good valuation.

2. Save $2,000 to buy a “beater” to get back and forth to work. If you really want to get out of your upside down car loan, now is the time to swallow your pride, and put aside your love of shiny cars. Over the next couple months, try to scrape up a couple thousand dollars to buy an old, ugly (but mechanically reliable) car to get you to work. That’s the only requirements. No sex appeal; no bells and whistles (and no car payment!).

3. Get an updated loan balance on upside down car. Contact your bank or auto finance company and get the current “pay off” balance on your car. Compare this figure to the estimated sale price from step one. Often times car owners discover that they are not really upside down after all. However, if you bought new with nothing down, and/or rolled the balance of your previous car loan into your new one, chances are you are in fact in an upside down car.

4. Contact local bank or credit union to pre-qualify loan for the difference. Let’s assume you owe $22,000 on a car estimated to be worth $17,000. Unless you have $5,000 sitting around, you are going to need help paying off the car loan when you sell the car (this is a required step to clear the title for the new owner).  Discuss options for a personal loan in the upside down amount. This step is a lot easier if your loan is already financed at a local bank or credit union. Simply explain to the loan officer that they are already exposed to $5,000 in unsecured liability based on the figures you’ve obtained.

5. Consider alternate sources of funding. If your bank or credit union won’t budge, or your car is financed through the manufacturer, you will have to look for other ways to fund the difference. If you have good credit, Lending Club is a potential source of financing. Tell your story as part of the borrower profile and ask for help in dumping your upside down car loan.

6. Get your car detailed, inside and out. Back when I was in the market for a car I was amazed to find so many dirty cars for sale. It doesn’t take a lot of money or time to give a car a thorough cleaning, and clean cars bring more cash, so there is definitely a return on your investment.

7. Advertise your car is for sale in every legal place you can think of – and include pictures. Pick up a “For Sale” sign at an office supply store and stick it in the windshield with your cell phone number. Place a flyer with color pics (take a couple good photos, design your own flyer in Microsoft Word or Photoshop, and get a few color copies made) on your gym’s bulletin board, at work (where allowable), and post on Craigslist, community classified sites, etc. Tell your Twitter followers, friends on Facebook, email distribution…everyone you know that you are trying to sell your car.

8. Create a bill of sale to provide buyer, and immediately drop your insurance coverage on old car. Since it might take a while to deposit the money from the buyer, and close out the financing on your loan for the difference owed to pay off your car, prepare a bill of sale for the new owner to show proof of transfer of ownership. Bill of Sale forms for your state can be found online at places like LegalZoom.com. Be sure to also get new owner’s mailing address (if different than listed on the bill of sale) so you can forward the title to them when the finance company returns it to you after loan is paid in full. Also, be sure to contact your car insurance company immediately following the sale to update your policy.

With your upside down car gone, and the huge car payment replaced by a smaller loan payment, start a car replacement fund to prepare to buy your next car with cash. Over time, you will eventually be able to trade up in car, but only do so when you are able to pay cash for a car. Who knows; you might even find yourself driving a million mile car one day and skipping car payments forever.

Photo by ozjimbob

On my first post here at Frugal Dad, I wrote about our pile of debt and the steps that we are taking to get out of it. In several of the comments, people referred to selling our cars as a way to get a quick start on our debt problems. Well, my wife and I feel like that is a ridiculous move to make on our part. It’s just not feasible. Here are some of the reasons that we think the idea is bogus:

We’re Not Upside Down

Luckily, we are not upside down (having a loan larger than the cars value) on either of our cars. I drive a Chevy Malibu and my wife drives a Ford Focus. When we purchased them, we put a good chuck of money down and that has helped keep us on the right side of the equity.

Our Payments and Interest Rates Are Great

Both of our cars are financed with our credit union and neither are above 7% interest. Our payments total under $450 with mine being $200 and hers is $230. We will also get them paid off in less than 3 years if we only pay the minimum (which isn’t our goal). I can see where you might want to sell your car if you have outrageous payments. That’s just not the case with us.

We Feel Safe In Our Cars

I am guessing that some of you will now tell me to sell my cars and use the equity to buy a couple of “beaters”. Currently, my wife and I feel extremely safe in our cars. Before I purchased my Malibu, I drove a 1995 Ford Escort. That car felt like a big tin can to me and I knew if I were to get in a major accident, I was a goner. Now that I am driving my Malibu (with airbags galore), I feel much better knowing that my car is saver.

My wife drove a 2002 Pontiac Sunfire before her Focus. That thing was just a dangerous car. It rated horribly in Government crash tests. She was actually in an accident several years ago and broke her wrist. I thank God everyday that the other car hit the passenger side, otherwise she may not be around today. One of our main goals in finding her a new car was safety. We found that with the Focus she has today which also has airbags throughout the car.

If we were to sell our cars and buy “beaters”, I think it would add a level of additional stress to our lives and frankly, we just don’t want that.

We Don’t Want the Added Costs of a “Beater”

Over the past few weeks, we have seen many friends put hundreds of dollars into their older model cars. It seems like every other weekend something goes wrong. I think one of our friends just broke their car door handle and then took it to the shop only to find that they needed a new transmission. We just don’t want those surprises while we are getting out of debt. My wife’s car still has a warranty so if anything goes wrong with hers, we will be covered. My car is only 4 years old and I have yet to have any trouble with it (besides wear parts like breaks).

We Have Long Commutes

Several of the comments also talked about just keeping one car and making that work. Well, I am here to tell you that it is impossible. During the week, I live in another state to work. Although it’s only 2 hours away from my wife, I obviously need a car to get back and forth. I just can’t see myself “biking it” either. My wife on the other hand, has about a 30 minute commute to work. Like I said before, it’s just not possible for us to be a one car family. I hope that day will come, but it’s definitely not now.

I know this post wasn’t the most organized. It also wasn’t my best written one. I just really wanted to express my opinion on this matter. You just can’t recommend someone to do something until you know the whole story.

“Geraldine”, a sassy lady portrayed by the late Flip Wilson, answered her husband thusly when he demanded an explanation for yet another new dress: “The Devil made me do it! I was walking down the street minding my own business when he snuck up behind me and pushed me into that dress store. He MADE me try on! Then he pulled a gun on me and forced me to buy it and sign your name to a check.”

Geraldine’s humor is timeless because so many of us can relate to it. For example, have you ever bought a new car and then wondered what possessed you to do it? I doubt if it was the devil, but the devil’s first cousin, car fever, will have the same results.

Do you currently own a car you wish you had never bought? Are you asking yourself if you should try to sell it or just live with it? This post is designed to help you think through this dilemma.

Start by asking yourself these questions:

How much do I owe on it?

If you paid cash, then you are probably not facing a financial crisis necessitating the sale of the car. If you simply don’t like the car, then take your time, sell it and pay cash for another one. If you are in debt, move on to question two.

How big a burden is this car on my budget?

If one hiccup in your life will cause you to start missing payments, then you need to amputate this car before that hiccup occurs. Even if you are easily making your payments, you still might be deceived into thinking all is well. Long term debt on a depreciating asset such as a car is a formula for staying perpetually in car debt. To break that cycle, you need to get the car paid off in 24 months or less and then keep driving it while you save cash for your next car. If you are on track to do so, then keep the car and enjoy it. If not, you should seriously consider getting rid of it.

If I am seriously considering selling, how do I go about it?

Knowledge is power. First, you need to learn if you are upside down (owe more than the car is worth). Check http://www.kbb.com/ to learn the private party value* of your car. If this value is less than what you owe, you are upside down. *(Use private party value because you are money ahead selling the car yourself).

But how does this work? Here is an example: You owe $22,000 on your “Geraldine” car and you could sell it for $18,000 (private party sale on www.kbb.com), thus putting you $4,000 upside down. If you decided to buy a $3,000 car (we will call the “beater”), your new debt would be $3,000 plus $4,000 = $7,000. You are still upside down, but you have eliminated $15,000 of debt.

How do I go about selling a car I am upside down on?

Unless you have an extra $4,000 available, you will need to borrow it in order to get the title released. So where do you borrow the money from?

Start by checking with the title holder. You have done your homework, so explain your rationale. In effect, you are asking for an unsecured loan on your upside down amount. Most lenders are not thrilled by this, but explain that this same amount of the current loan is already unsecured and you are simply asking that they move this amount from a more expensive car to a less expensive car.

If the title holder balks, don’t give up. Try your credit union or your home town bank, explaining that you will be moving your business to them. If you simply can’t find financing, consider other options such as selling stuff (Craigs List or Ebay or yard sales) or temporarily working a part time job.

REALITY CHECK: Are you ready to get your Geraldine car out of your life? Good! Doing so will not only be a huge relief, but will teach you to never again succumb to car fever. Still, you need to go into this decision with both eyes open, so the following pros and cons will help you preview the reality of your decision:

The Good

• LESS DEBT. You have just reduced your total debt by $15,000!
• OUT OF DEBT QUICKER: From our example, with an 8% loan and monthly payments of $400, your Geraldine car will be paid for in 5 years and 9 months. Your “beater”, on the other hand, will be paid off in only 19 months.
• STAY OUT OF DEBT: Once the beater is paid off, you could save $4,800 toward another car by making payments to yourself for one year. Assuming your beater would bring $2,000, you could upgrade to a $6,800 paid for car. Had you stuck with your Geraldine car, it would have depreciated to about $12,000 by now and you would still owe $13,300 on it.
• PEACE: You will know that you have taken the steps to undo that Geraldine decision. This is a great feeling.

The Reality Check

• INCONVENIENCE: Selling your car and buying another is a hassle.
• A DOWNGRADED DRIVE: Face it: your Geraldine car is nicer than a beater will be. Be prepared for it.
• LESS DEPENDABILITY: No doubt your beater will have some issues. You need to be realistic in assuming that it will not be as dependable as a newer car.
• MORE MAINTENANCE: With less dependability comes more maintenance.
• FRIENDS WON’T UNDERSTAND: Reality? Yes. Negative? Not really. Just be prepared for it.

One Final Reality Check

You may not be able to arrange the necessary financing. Why? Either your credit score is not adequate or you are too far upside down. Should this be your scenario, you will need to strategically pay down all other debt in order to free up enough cash flow to make huge car payments. Keep the car until it is paid off or you will be swimming in car debt for years to come.

Readers: Have you ever regretted a car purchase? What did you do and how did it work? What tips would you offer?