Your Car Kicked The Bucket? Time To Change?

When the phone rang, I knew the news was bad. "It's the catalytic converter," she told me. "And it's going to be $1,500 to fix."

My mom had already begun to mourn her 1999 Volvo XC70. As she talked about the repairs the station wagon needed, she admitted she'd been eyeing a new Toyota Prius, because paying to fix the Volvo just didn't seem worth it.

After all, Mom's Volvo, which is in fair condition and has nearly 150,000 miles on it, has a Kelley Blue Book value of about $3,000. Putting almost half the value of the car into fixing it would be silly and wasteful.

Not so fast, Mom.

Mom's Math

At some point, almost every car owner will be faced with repair bills. And as the bills start to add up to a large proportion of a car's value, many owners start to figure that their car has officially kicked the bucket. But thinking that way is actually a costly mistake.

This way of thinking confuses a car's potential monetary value with its actual value. At a basic level, a car's value -- any car's value -- is its ability to provide transportation. An older car and new car can both do that. The question drivers whose cars are on life support should be asking is: How can I get the transportation a car provides at the lowest cost? Once you take a car's potential monetary value out of the equation, the math becomes clear.

For instance: Faced with a $1,500 repair bill, my mother's instinct was to go out and buy a $22,000 Prius in the name of saving money. Her Volvo is completely paid off. On a monthly basis, the only thing it costs her is gas and insurance (and since the car isn't worth all that much, the insurance is pretty low). So, yes -- paying $1,500 to save a $3,000 car does seem silly -- until you compare it to paying $22,000 for a new car to avoid a $1,500 repair bill.

The Real Math

Here's the math any car owner should do when deciding if their older car has shuffled off the mortal coil: Compare the cost of the old car over a year to the cost of a new car over the same time frame. Chances are, if your car is more than five years old, you're looking at some hefty repair bills. You're also probably looking at owning the car free and clear - which means no more monthly loan payments.

Look again at Mom's situation. The Volvo, because it needed some other repairs earlier in 2009, has cost about $2,300 in repairs this year. She spends about $90 per month insuring the car and about $200 a month on gas) driving an average of 400 miles per week). Altogether, the Volvo will cost her about $5,780 this year.

Now, let's take a look at the cost of a new Prius. Assuming she can get one for $22,000, taxes and tags included, and she puts 10 percent down, it starts out by costing her $2,200. Then if she gets a five-year loan at six-percent interest, she's looking at a monthly car payment of $386. She will see some significant fuel savings, as driving the Prius 400 miles per week should end up costing her about $72.32 per month in gas, based on EPA data. If her car insurance rate stays the same, the Prius will cost her about $8,899 this year -- $3,119 more than the Volvo. And, the Pruis will cost her, on average, $919 more per year than the Volvo for the next five years that she has a car payment.

Other Factors

Of course, there are other things to consider. If your older car is consistently unreliable, causing you to miss or be late for work, or repeatedly leaving you stranded along dark highways, it might be time for a new one. Also, there are some problems that are incredibly difficult and expensive to fix, pushing the cost of the old car above the cost of a new one. If your car has had a number of major issues, and your mechanic sees more coming down the pike, it might be time to start thinking about a new (or new-to-you) ride.

There are also some people who like getting a new car, and don't mind that they are spending more to do so. There's even the argument that getting older cars off the road in favor of newer, more fuel-efficient and less polluting models benefits us all -- Congress is even close to a deal that would allow the federal government to pay people for trading in their old gas guzzlers. This cash-for-clunkers law would provide up to $4,500 for owners of older cars to get newer, cleaner models.

Still, when deciding if your car is finally dead, the one factor you shouldn't be looking at is the ratio between repair costs and the car's sale value. Instead, do a hard comparison of your old car's cost and what a new car would cost you over a year before you decide it's time to pull the plug.