This is a guest post by Jenna, who writes credit card reviews on AskMrCreditCard.com. Jenna and her family are repairing their credit after bankruptcy. She also writes about her financial experiences every Monday and Wednesday on Mr. Credit Card’s blog.

Two weeks ago, our only car broke down. We were immediately faced with several tough decisions. Should we:

• Finance a new car? This would definitely help repair our credit scores faster, but it would lock us into a hefty monthly payment.
• Repair our old car? We had a mechanic look at it, and it needed about $3,000 worth of repairs.
• Buy a used car? That would mean taking a chance that it did not also need several thousand dollars worth of work.

Rather than making up our minds immediately, we chose to explore all of our options. We contacted both Ford, and Kia, and gave them our information. We are three years out of bankruptcy, we had $2,000 down, and we both (after a lot of hard work!) have credit scores just over 600. We were also willing to trade in our previous vehicle.

Both Kia and Ford assured us that they could get us financing, even with the Bankruptcy still on our records.

We had a mechanic look at our old car, an ancient Cadillac, and give us an estimate. Since the amount of work it needed exceeded the book value of the car, we decided not to make that our first option.

We searched our local paper, and Craigslist looking for used cars in our price range. We found several cars that we thought were suitable.

After a lot of hand wringing, and a bit of an argument, my husband and I both agreed on what we should do. We chose not to finance a new car. We made this decision for several important reasons.

• Even though we can get financing on a new car, it does not mean that we should Given the current state of the economy, bad credit borrowers like us are not exactly being treated well by lenders. If we had financed a car, I have no doubt that it would have been at an extremely high interest rate.
• Right now isn’t the best time to buy a new car We are just shy of the end-of-year deals.
• Financing a car would have meant an additional monthly payment over several years We were more interested in putting our extra money into our savings account than paying it monthly to Ford or Kia. If we keep the money in savings, it can take care of any problems we might have – car related or otherwise.
• We are working to raise our credit scores While financing the car would have raised our credit scores, we are really doing just fine without it. Personally I am using a combination of secured and unsecured credit cards. I pay my bills on time, and I don’t charge more than I can pay off each month. So far, this has raised my credit score over 100 points. I didn’t feel the need to take on extra debt to raise my credit scores when my current method is already working. The next step I will take to raise my credit score will be in the form of a gas credit card that gives rewards or rebates.
• We found a nice used car for $800 It runs well, has just over 100,000 miles, new tires, and the owner kept a spotless maintenance record. We got to speak to the previous owners and ask the direct questions about the condition of the car. We do expect it to have some problems though! So, we plan to use the $1,200 we had left to make any minor repairs that it might need.

At best, it’s a temporary solution. If our new car lasts at least 12 months, I will consider it an excellent deal. After all, I doubt that we could have rented a car that cheaply. If we maintain it well, and it runs even longer, then it was a very good purchase. Besides, having that much more time to continue raising our credit scores will benefit us when we do choose to finance a new car -the interest rate on our loan will be lower.

Even with all those positives, the biggest benefit to buying a used car was far and away the psychological benefit. Instead of using every penny we had to finance a new car, and then worrying about the payment, we chose to live well within our means. Now I have a used car that I worry will break down, but we aren’t broke. We still have most of our savings and we can afford to fix it if we need to.

Living beyond our means is part of what led to our bankruptcy in the first place, and this decision left me feeling very, very good. It means we are finally getting our heads on straight and it means that we will eventually recover from our bankruptcy.

What do you think? Buying used car was right for us, but is it right for you? Everyone’s situation is different. Tell me what you think in the comments!

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