Question

Hannah is about to get a raise at work that will add $200 to her monthly paycheck. She wants to buy a new car to replace the four-year-old car she is driving. She has $1,000 in her emergency fund and a credit card balance of $650. If she trades in her car and buys a new one, her current payment will only increase by $75. She is leaning toward doing this because she would still have $125 extra per month. What would Dave say?

Answer 1

As per the given situation, there are many things that Hannah has to do on priority basis.

Like firstly, she should pay off her credit card that will take about 2 months to do if she is serious about doing it.

Secondly, she should not think of getting a new car as long as she saves enough money to pay cash for a used car.

One should never take out a loan to get a new car as the new car will loose 70% of its value in the first four years.

Thirdly, she should try and make additions in her emergency funds, that can save her, for at least for 3 months of any emergency.

These are the best advice Dave or any person can provide.

Answer 2

Dave Ramsey would say Hannah should pay off her credit card balance, put some percentage of her income into a retirement account, and save her additional funds for as long as it takes to purchase a suitable car outright (with no payment).