Living with credit, Protecting yourself

Auto and student loan debt? It’s not all that bad

Sienna Kossman

I am officially the owner of a 3-year-old, new-to-me car and a $9,300 auto loan. And I’m thrilled.

I’ve been on the hunt for a new car for a while, but until recently did not have much luck. Between high financing rates with tight loan restrictions or overpriced cars that weren’t worth the sticker price, I became pretty discouraged. But things quickly changed for the better last week.

Auto and student loan debt? It's not all that bad

After a mini-meltdown and then soliciting some moral support from someone who has done this before, I found the perfect vehicle and a dealer that actually shopped for the best financing rates for me. Forty-eight hours later, I had a new set of wheels and 4.9 percent APR auto loan.

If you’ve been following my student loan debt saga, this news may come as a surprise. I’ll admit I’ve had a couple brief moments of buyer’s remorse since signing the papers, but despite all that, I firmly believe I made a good financial decision. Here’s why:

More money now, less later

I’ve never owned a car that was not a huge financial pain.

My first car was a fussy, two-door coupe with a decade-old water pump that never worked correctly. My second car (the one I just replaced) was a 1989 hand-me-down after my previous car’s transmission died. The second had fuel injector failure and awful brakes. Needless to say, I’d become accustomed to paying for repairs on vehicles that probably weren’t worth it in the first place.

When I began casually car searching a couple months ago, I was intent on finding another temporary solution: something affordable that I could almost pay off in full with savings, easy on gas and not expensive to maintain. I just wanted something to tide me over for 5 years or so.

I soon realized that it’s nearly impossible to find a car that meets those criteria — especially for under $7,000.

So, after some helpful recommendations and a financial re-evaluation, I decided that it was in my best interest to spend a little bit more money on a newer car with fewer miles, only one owner and no pre-existing conditions. Either I pay more money right off the bat for something that will last much longer or worry about what costs will arise unexpectedly later.

Credit diversification

Getting the loan will boost my credit score. Before applying for my auto loan, I held three small lines of credit and a student loan account. I’ve never made a late payment on any and keep my card balances as low as possible by paying more than the minimum amount due — if not the full balance — at the end of each month.

These are all good-credit building behaviors, but as a young credit holder with a relatively short credit history, any positive actions I can take to strengthen my portfolio are of interest to me.

Your credit mix accounts for 10 percent of your FICO score and while that’s a small portion compared to payment history (35 percent) and amount of debt owed (30 percent), having a variety of well-managed credit accounts demonstrates responsibility and can raise your FICO score.

My new auto loan won’t automatically boost my score, but if I continue to practice good repayment habits and keep card balances as low, my diversified credit portfolio will benefit me going forward.

Millennial milestone

With increasing talk of millennials falling behind on life’s major milestones like moving away from home, getting a job and starting a family, it feels really good to check “financing a car” off my list of financial to-do’s by age 23.

I know what it’s like to feel completely discouraged by the job market and worry about student loan debt to no end. Over the past few years, it’s been really easy to get financially discouraged, but my car purchase has affirmed that I can manage whatever issues the statistics say my generation is facing.

In fact, I almost appreciate my new car more because I know it’s not something everyone my age can afford to do. Sure it will take a little bit of time to get used to an even tighter budget and higher insurance rates, but it’s for the best and I’ll continue to learn along the way. I’m climbing the financial ladder one step at a time.

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