| Hi Taylor
- My car died the other day and I need to get a replacement ASAP.
I'm wondering if it makes more sense to take some money from my emergency
fund or take on a little bit of debt (I think I could pay it off in
about three months). Any thoughts? - Karen
Hi Karen - Sorry to hear about the car! Sounds like a less-than-ideal
situation, but sometimes you gotta do what you gotta do. Instead of
me giving any sort of directive, let's go over the pros and cons of
fund. It's there for emergencies, and this probably feels
like a dire situation. If you don't have a car to get to and from
work, you won't be able to afford anything, much less a new car.
However, the real need for an emergency fund comes when you find
yourself either unemployed or incapacitated. Ideally, you leave
that money alone until circumstances truly leave you with no other
option. The only time I'd advocate for pulling out of your emergency
fund is if you feel confident you can reimburse yourself quickly
and you aren't using all of those savings. If you can take less
than half the fund and replace that money within a couple of months,
that's not the worst scenario.
2. Credit. Whether you get a loan from the dealership or put
the expense on a credit card, you'll lose money by way of interest.
I hate debt and would prefer almost any other route, but if you
have good credit and get a decent APR, paying interest for three
months might be worth leaving your emergency fund untouched. This
all comes down to the size of the loan, the amount of interest
and whether or not you have other outstanding balances. If you
already pay a bunch in student loans or other credit card debt,
I'd lean toward not putting yourself any further into the red.
3. Wait. You didn't mention this option, but I'm still going
to bring it up. I know you need a new car ASAP but have you looked
at every option? Can you get by doing rideshare in the short term?
Sometimes it costs less to pay for Uber or Lyft than it does to
cover your own car payment, gas, and insurance. Can you try public
transportation for a month while you look for a cheap vehicle?
Do you have a friend going out of town who might let you drive
their car? These options could all be nonstarters, or one of them
could solve everything and save you a chunk of money.
Buying a new
car is one of life's necessary evils, which is why we all need to
budget for just such an event. If you're interested, you can read
about some of my "must budget" items at GoFarWithKovar.com.
In the end, you just need to find the least costly way to move forward
and go for it. Good luck, Karen!
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.