Outward appearance for current car is that it’s in pretty decent shape: 2006 Ford Focus, low mileage, well maintained. Except for that pesky electrical problem that no one can diagnose, it comes across as a solid car. (And there’s no evidence of the electrical problem except when a battery or alternator suddenly dies.)
It’s paid for, and I’m going to take it in to Carmax soonish for an appraisal to see what they’ll offer for it. That will decide whether I check the value as a trade or try to do a private sale on it.
Let’s imagine they give me $5k for it. The car I’m strongly leaning toward is a Mazda 2 (maybe a used 3 if I find one that’s solid). I have a chunk of credit card debt - that $5k would pay off 3 cards and about half of another, including the 2 highest interest rate ones, one of which is ridiculously high. OR that $5k could be a down payment for the new car.
For all that I have debt, I have good credit, so I’m likely to qualify for decent interest rates, either through dealer financing options or through my credit union. That being the case, would I be better off taking that (yes, hypothetical) $5k and paying off the cards, then financing the full amount of the car, or using it as the down payment?
(I know that I may not get close to that much as an appraisal for this car, and that could make this whole question moot. )
I would go to the credit union first and have them pre-qualify you for a loan and see what interest rate you can get, then see if the dealer can beat that.
I bought a used car 3 months ago and walked in with financing from my credit union at 2%, I was stunned that the dealership was able to offer 1.8%, but they did. I hate to finance a depreciating asset, but 1.8 or even 2.0% is very reasonable.
My calculation for your scenario would almost entirely be decided on the value of the used car you purchase and the length of the loan. I never want to be “upside-down” on a vehicle, so I would put enough down to insure that the car will always be worth more than I owe, then use the rest to pay off debt.
ETA: You may be surprised to find out what your used Ford is worth. Dealers are desperate for trade-ins, even 2006 models.
If you can still get a decent interest rate car loan with a smaller down payment, paying down your credit cards should be a no-brainier. I have also been amazed at what low rates you can get car loans for these days-- the loan on my used pickup truck is lower than my mortgage!
Being upside down on a vehicle is discouraging, but it’s not like being upside down on a house where they may make you refinance or anything like that. I’d say treat the car loan and the credit card debt as fungible and try to get as much of the debt into the low interest car loan as possible. The only real drawback is that if you pay your car off sooner, you can drop the collision and comp insurance or raise the deductibles, but that might not be a great idea on a newer car anyways.