Keep the 2004 Jetta TDI or Buy a Used 2014 Honda Fit

As someone who has commuted 102 miles round-trip dailiy with a manual transmission, I would definitely recommend getting an automatic!

Transmission notwithstanding, a 12-year-old car with 200k miles always runs the risk of needing of costly repairs. VW's are great cars in many ways, and the TDI probably has a lot of miles left in it. But when VW's break, they aren't cheap to fix.

My other concern would be for your safety. The Jetta was actually a very safe car when it was new and still holds up decently in crash tests compared to newer models. But newer cars are safer and there's less of a chance of a major failure that leaves you on the side of the road.

Your choice of a 2012-newer Honda Fit is a very good one. Most auto experts consider it a "can't lose" proposition.

As an alternative, I would at least take a test drive in a 2012-2013 Mazda3 i. It has been very reliable, has more power and room than the Fit and better fuel economy. It also has more features availalbe, if that matters to you. It's worth a look.

OK, so while I would typically recommend a Fit and try to dissuade anyone from getting those older diesel/turbo VW's, in your case you may be better off with the VW for a little while longer.

I would:
1. Get the VW paid off as fast as you can (presumably in under a year since you only owe $3k?)
2. Get that clean title and drop collision insurance on it
3. Save up a couple thousand dollars cash (easy since you won't be making car payments or paying collision anymore).
4. Sell the VW private party; probably on Craigslist and at the same time buy a used ~$4,000- 5,000 07-08 Honda Fit which you'll own cash-money, no payments, no collision insurance and which will still be very reliable (see the data on this site).

If you have trouble finding Fits in that price range, Toyota Matrixes/Pontiac Vibes have similar functionality, and a Toyota Yaris or Scion Xa, Xb or Xd would be fit-like but smaller.

Essentially, I'd make this process happen as soon as possible. If you've got $3k+ sitting in the bank, get your final payoff number tomorrow.

Some great advice above.

I do think you want to get out of the VW as soon as you can. Among other things, you risk being stranded quite a few miles from home if it does break down.

My main concern with the Fit, and to a smaller extent with the Mazda3, is whether they're prove tiresome on a long commute. The Fit can be bumpy and noisy. Some people also find the seats very uncomfortable--make sure you get a lengthy test drive to evaluate seat comfort before buying.

One big advantage of the Fit, and to a somewhat lesser extent the Mazda, is that they'll hold their value better than most cars as you pile on the miles.

With gas prices so low, it might be possible to get a deal on a Toyota Prius. Not the cushiest ride, but they are quiet, reliable, and efficient.

Other reliable, fairly efficient, reasonably comfortable hatchbacks to consider include the 2013 and up Hyundai Elantra GT and the 2014 and up Kia Forte5. I don't think these have sold well, especially not the Hyundai, so dealers should be dealing.