I'm not in good financial health with lots of debt and already max mortgage on home. I have a decent credit rating probably high 600's right now, possibly low 700's (when I checked 6 months ago one agency was 690 another was 705). I've got a 5-year old car with only 35K miles on it but it is out of warranty and is an expensive European make that has been higher maintenance than my previous Japanese vehicles. I own the car outright and it is worth about $20K. I have a credit card balance of about $20K also at 14% interest. While I am apprehensive about taking on any additional debt, I don't think it is good to have money locked up in a depreciating asset like a vehicle, especially when interest rates are at historic lows. However to be honest, I hate the fact that changing vehicles is going to give those around me the idea that I'm doing well financially when I'm not. But that's the emotional side of the decision and I shouldn't worry about what others perceive and just do what I think is right, right?

Anyway, I'm considering selling or trading in my car to get the $20K out of it and either investing the $20K (keeping it in the car is called 'cost of lost opportunity' in financial speak) or paying off the credit card. I'm self employed and so my car is a big write-off and it needs to meet certain criteria (size/utility, etc) to help me be successful in my business, so it isn't like I can sell it and go buy a used beater and avoid a car loan.

If I kept my current car, being a car aficionado, I can realistically estimate the cost of ownership for the next 2-years will be significant with 35K and 50K maintenance, new tires, brakes, and who knows what else will go wrong on this Euro make. It gets about 20 MPG too, so gas prices play a role. I would estimate 2-yr cost of ownership for maintenance and gas will be $5K minimum. So lets say $1K of unanticipated repairs = $6K = $250/month over 24 months.

Lets say I am unable to significantly pay my credit card down over the next 2 years also so I'm paying about $2,800 a year in interest. That's another $230/month = $480/month total for my credit card interest and vehicle ownership costs.

Now lets say I buy a slightly used comparable car for $30K and pocket the $20K for my car. I can take that $20K and pay the credit card off and that right there saves me $230/month. However I know I can easily make more than that if I make some wise short-term investments with the money. But for now, let's be conservative and say I just use it to pay off the credit card.

The newer used car has all scheduled maintenance covered up to 50K. Assuming insurance costs are comparable, then the ownership cost of the new car for the next 2 years is just gasoline (assuming I don't need new tires) Plus the newer car gets 25% better gas mileage so my fuel costs are going to be about 25% lower. 2-year cost of ownership on the new car is estimated at $2,500, lets say $3K or 50% my current car. That's $125/month savings. However I'll have to pay about $3000 in sales tax which is the kicker, so that pretty much wipes out the maintenance cost savings. I can get 1.9% financing on the car. Over 60 months, that's a $525 payment on a $30K loan.

So worse case the car costs me $300 a month. If I can make more than $525/month off the $20K recouped out of my current car, then it is net positive. But bottom line, I'm really worried about problems with my current car being costly over the next 2-3 years. I can either purchase a warranty for like $3K, or I can put the $20K I have into my car to work elsewhere. It is a tough decision.


Actually if I did a lease, I could bring the payment down more which is they way to go if my strategy is to minimize cost of lost opportunity with the money.

Sounds to me like your trying to justify buying a new car while being deep in debt with a faltering economy. I think you should prioritize what you want, get out of debt or buy a new car. With your way of thinking at this point it is going to be one or the other.

You seem to be out-smarting your own good senses. With the tax write off and all of the other smart moves financially. However, you would still be deeply in debt and you can't write the complete purchase price of the car off. I think getting a car should be the last of your worries as a self employed person with $20k in debt. But that's just my opinion.