Time to smell some roses or do I still have a hill to climb?

[thomsoad]

Hi everybody. I just joined this forum and I need some advice or recommendations. I am really torn on this..

First off I have been following DR for the last 2.5 years. In that time I paid off the following: 6K in CC debt, 10K in student loans, 8K LOC, and 11.5K in what we call Stupid Tax (ex fiance ... dont even get me started! ). I also paid down my mortgage to get rid of my PMI (12K).

So I am officially debt free except my mortgage and even now have 10K for my emergency fund.

Here is where I am now stuck: I drive a dark green 1994 Toyota Camry with 130K miles on it. It is truly the classic beater. Runs great but ugly as all on the outside. So obviously I would LOVE to get a better car. What I really want is a 2004 or 2005 black S2000. They run around 16-18K and will take me 10 months to a year to save up for.

However, when I bought my house I got a 10 year ARM of which I have 5 years left. I live in Phoenix and I am currently really under water by about 50K and seriously doubt the market will recover enough in time unless I make xtra payments so I can refi my house into a fixed mortgage ASAP and get a lower payment to boot.

So my dilemna is this... Half of me says "You busted your butt for 2.5 years with xtra jobs and being incredibly frugal; save up the cash for this car and lets enjoy the fruit of your labor." While the other half is saying "Hey buddy, your not done yet! Stop being a freakin spoiled child and spend the next 2.5 years getting out of this ARM mess you are currently in."

So my question is ... Do I get the car and then bust out my mortgage to get to a 15 year fixed. Or take care of the ARM first and keep driving the beater for the next 2.5 - 3 years?

[disneysteve]

What about a third choice? Upgrade the car but not yet to the dream car. Surely, there is some very nice middle ground between a 17 year old Camry and an $18,000 S2000. Maybe buy something for 5K or 7K and drive that for a few years while you are cleaning up the mortgage mess. Then you can work on the car you really want, whatever it is at that point.

[thomsoad]

What about a third choice? Upgrade the car but not yet to the dream car. Surely, there is some very nice middle ground between a 17 year old Camry and an $18,000 S2000. Maybe buy something for 5K or 7K and drive that for a few years while you are cleaning up the mortgage mess. Then you can work on the car you really want, whatever it is at that point.

I thought about that. But i personally dont see a point in doing that. Id rather just stick with the beater since its mechanically sound and plow forward with the ARM paydown instead of a middle ground car. The S2000 is really the only car I want.

[kork13]

I was thinking similarly to DS, except the other way... Why not do both, ARM and S2000? Start saving up for the car, but also pay down the mortgage? If you can delay the car for 1.5-2 years, slowly saving up for it during that longer time frame, how far can you get on the mortgage? Probably by the time you have the $18k for the car in 2 years, you will have also brought your mortgage down by about the same amount. At that point, focus everything into the mortgage, and the following 3 years will reduce your mortgage by an additional $54k. And is it unreasonable that over the next 5 years the Phoenix housing market will have recovered at least somewhat? I would expect so. And at that point, you'll have built an extra $72k in equity beyond whatever regular payments you're making now.

[Slug]

Are you maxing out a Roth IRA as well this year and fully contributing to your company's 401k (at least up to a match)?

[thomsoad]

I was thinking similarly to DS, except the other way... Why not do both, ARM and S2000? Start saving up for the car, but also pay down the mortgage? If you can delay the car for 1.5-2 years, slowly saving up for it during that longer time frame, how far can you get on the mortgage? Probably by the time you have the $18k for the car in 2 years, you will have also brought your mortgage down by about the same amount. At that point, focus everything into the mortgage, and the following 3 years will reduce your mortgage by an additional $27k. And is it unreasonable that over the next 5 years the Phoenix housing market will have recovered at least somewhat? I would expect so. And at that point, you'll have built an extra $45k in equity beyond whatever regular payments you're making now.

Ive spent sooo long doing the gazelle approach that I really dont wanna break that cycle. It reallt has done wonders for me and my plan is not to split it up for this purpose. Either I pay the ARM down first or I save up for my lifetime car. I honestly think I would get frustrated if I split it up. Being honest with you.

While analysts are far from perfect they predict we wont even hit bottom til next year. 50K might be too optimistic of a prediction!

[thomsoad]

Are you maxing out a Roth IRA as well this year and fully contributing to your company's 401k (at least up to a match)?

Yes. I am doing the 5K Roth and the 6% match which is 15% of income. Im not going to stop doing that to save for the car if that was the implication. I have held off to get to this point and its time to get back in. Paying off the ARM or the car isnt THAT important.

[disneysteve]

Ive spent sooo long doing the gazelle approach that I really dont wanna break that cycle. It reallt has done wonders for me and my plan is not to split it up for this purpose. Either I pay the ARM down first or I save up for my lifetime car. I honestly think I would get frustrated if I split it up. Being honest with you.

If that's the case, certainly getting out of the ARM is more important than upgrading your car. Otherwise, what happens if the ARM expires and you are still underwater? Then you're screwed.

[thomsoad]

If that's the case, certainly getting out of the ARM is more important than upgrading your car. Otherwise, what happens if the ARM expires and you are still underwater? Then you're screwed.

Thanks DS. So just to be clear you are telling me if you were me you would still have one more mountain to climb before smelling some roses?

[disneysteve]

Thanks DS. So just to be clear you are telling me if you were me you would still have one more mountain to climb before smelling some roses?

Afraid so. Not worth getting the snazzy car and then finding yourself down the road with a mortgage payment you can no longer afford because your rate adjusted upward sharply.

[bjl584]

Your Camary may be ugly, but it probably still has another 100K miles in it. You stated that you are mechanically sound, so just keep driving it while paying down the ARM.

I would set some money aside as a "car fund" should your old friend explode or get wrecked beyond repair. Then, just keep driving it while paying down the ARM. If the car should die you will have enough to go get something else. Probably not what you want, but it will get you transportation. And, since we are on the Dave Ramsey plan, now is not the time to be picky about what car you are driving.

[thomsoad]

Your Camary may be ugly, but it probably still has another 100K miles in it. You stated that you are mechanically sound, so just keep driving it while paying down the ARM.

I would set some money aside as a "car fund" should your old friend explode or get wrecked beyond repair. Then, just keep driving it while paying down the ARM. If the car should die you will have enough to go get something else. Probably not what you want, but it will get you transportation. And, since we are on the Dave Ramsey plan, now is not the time to be picky about what car you are driving.

Yes I do follow DR but never heard him respond to this particular question. He states a car is 3B which is before paying off the mortgage. Which is where I am technically at...but the ARM kinda throws a monkey wrench into that plan.

[disneysteve]

Yes I do follow DR but never heard him respond to this particular question. He states a car is 3B which is before paying off the mortgage. Which is where I am technically at...but the ARM kinda throws a monkey wrench into that plan.

I agree that this isn't the typical mortgage situation. Why don't you email Dave at daveonair@daveramsey.com. Maybe he'll answer your question on his show.

While this normally would be the point at which you upgrade the beater or replace the worn out sofa or whatever, the ARM situation still needs to be cleaned up to prevent running into a problem when it resets.

[jpg7n16]

“Patience is waiting. Not passively waiting. That is laziness. But to keep going when the going is hard and slow - that is patience.”
-Unknown

[cypher1]

Your Camary may be ugly, but it probably still has another 100K miles in it. You stated that you are mechanically sound, so just keep driving it while paying down the ARM.

I would set some money aside as a "car fund" should your old friend explode or get wrecked beyond repair. Then, just keep driving it while paying down the ARM. If the car should die you will have enough to go get something else. Probably not what you want, but it will get you transportation. And, since we are on the Dave Ramsey plan, now is not the time to be picky about what car you are driving.

I'd definitely do that, or compromise like others mentioned finding something for under 10k. The ARM definitely changes the outcome. I will say, if you can afford to own your S2000 now, then go for it. However, that older camry you may miss once gas increases in price, and they're so easy to work on and repair,let alone being 15+year old car. I've never been a fan of convertibles, but if I ever buy one, it'd be the S2000. But if you also wait 1-2 years from now, prices will still drop on them.