“I don’t know how much money I should have in the bank.”: I have car debt and no savings. How can I manage my finances better and address this issue?

Hi Money Minder,

Hey Money Minder,

I gotta admit, I’m clueless when it comes to money stuff and I’ve definitely made some dumb choices.

So, here’s the deal: I bring in around 3200 bucks every month. Right now, I’ve got $4,490 sitting in my checking account and zilch in savings (except for a retirement account with 4K). About 8 months back, I dropped 3 grand on a $20,000 car and took out a loan for 17,400 bucks at an interest rate of 8.9%. I’ve been ahead on payments for a year and now owe 13,400 bucks.

My rent checks in at 700 bucks a month. I’m feeling the pressure from my debts and thinking about ditching the car. It was my first wheels, and I wanted something covered by some kind of warranty. It’s a Certified Pre-Owned Toyota Corolla with around 60,000 miles on it. I also have 5K on a credit card with zero interest (until January). I’ve tried talking to my mom about this, but she’s as lost as I am when it comes to money. So, here’s the big question: Is my financial situation bad enough that I should sell the car and get something cheaper?

If I stick with the payments, would it be cool to throw an additional 2 grand at the car? Or maybe just 1,000 bucks more? I keep hearing conflicting advice about keeping money for emergencies while also paying off debt. My mom says I should stash some cash for unexpected job loss or emergencies. Honestly, I have no idea how much money I should have saved up. Any advice is appreciated.

Thanks a bunch!

Seeking Some Clarity

Response from THE MONEY MINDER:

Thank you for reaching out to us. Please provide us with any specific questions or concerns you have regarding your finances, and we will do our best to assist you. Remember, we are here to help you make informed decisions and achieve your financial goals.

"Hello There,"

I understand your concerns about your financial situation, and it’s commendable that you’re seeking advice on how to improve it. Given the details you’ve shared, it does seem like your current debt levels are causing you stress, especially with the car loan and credit card balance hanging over your head.

Selling the car and switching to a more affordable one or a beater vehicle could be a practical option to reduce your debt burden. However, before making this decision, consider the trade-offs such as the potential loss on the sale of your current car and the quality and reliability of a cheaper vehicle.

In terms of making additional payments on your car loan, it’s essential to strike a balance between paying off debt and building an emergency fund. Setting aside some money for unexpected expenses like job loss or emergencies is crucial to avoid further financial difficulties. Aim to gradually build up your emergency fund while also making extra payments towards your debt to reduce the interest you’re paying over time.

Ultimately, finding the right balance between paying off debt and saving for emergencies is key to improving your financial situation. Consider creating a budget to track your expenses and prioritize debt repayment while gradually building up your savings. Seek advice from a financial advisor if needed to create a personalized plan that aligns with your goals and financial priorities.

I hope this advice helps you navigate your financial situation. If you have any more questions or need further assistance, feel free to reach out. Take care and best of luck on your journey to financial stability.

Farewell from THE MONEY MINDER.