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Question for the Money Doctors

Question submitted on May 12, 2010.

Question

I have $38,000.00 saved to pay cash for a new car that I have wanted for several years. Now that I have the cash saved I am wondering if I should buy a less expensive car say in the 25K range and put the rest of the money toward the principle of my mortgage. My only debts are a 6K student loan at 2% interest and my mortgage of 140K at 6% interest.

Answer

Hi - It seems like you really want this new car.  And I am a big fan of driving a "beater" until the whells fall off.  There are so many good, used cars out there being sold at deep discounts that it almost does not make sense to drive new.  That said, my advice is to: 

1) If you NEED a new car, buy a good used or less-expensive new car for cash,

2) pay-off your student loans and 

3) keep the the remainder for your "emergency fund." 

Hope this helps!

Jason Loiselle, CPA/PFS


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