WWMMD? Car question

smbenevides1989 · December 2014

This is more on the side of thinking out loud, but I would like to know what you would do.

I bought a brand new car in 2013, more than I should have paid for, but being stupid with money I bought it anyways. I'm able to make the payments just fine and am dealing with the mistake since I love my car. A thought popped into my head about selling the car for something that has more room, still great gas mileage, and not that old. The problem I have is that I still owe a lot more than its value and with our family trying to do a modified DR plan, we don't have much money to put down on another vehicle. How bad would it be to trade in my car and have a smaller loan to cover the remainder of both cars? I still have almost 5 years to pay on my current car (I know, stupid mistake!!) and the payment is already high itself.

Xstatic3333 · December 2014

smbenevides1989 said:
This is more on the side of thinking out loud, but I would like to know what you would do.

I bought a brand new car in 2013, more than I should have paid for, but being stupid with money I bought it anyways. I'm able to make the payments just fine and am dealing with the mistake since I love my car. A thought popped into my head about selling the car for something that has more room, still great gas mileage, and not that old. The problem I have is that I still owe a lot more than its value and with our family trying to do a modified DR plan, we don't have much money to put down on another vehicle. How bad would it be to trade in my car and have a smaller loan to cover the remainder of both cars? I still have almost 5 years to pay on my current car (I know, stupid mistake!!) and the payment is already high itself.

I don't think it would be that bad. If you're trying to do DR's plan, I think I've actually heard him recommend that technique in the past (though @brij2006‌ is the expert there!)

Also, good to see you around again! I'm on mobile and don't see siggys, so how's the new baby doing?

brij2006 · December 2014

You could always sell the car outright, private party, and borrow the difference. Usually this is done in the form of a personal loan at small banks (like credit unions). Then you would also add on a couple thousand to purchase a used vehicle to get you by, that's paid for in cash.

The biggest negative to buying something older and still having a payment on it, is that more than likely it will need repairs made to it. So if you have a monthly payment of $200, then have to do a $500 repair on it, many people get discouraged and think they would have been better off still having that $350-$400/month payment and not need to worry about maintenance.

I always recommend an older Ford Taurus, Chevy Impala, or Buick Lesabre for a cash car for people who aren't car savvy. They get around 25-30mpg, are very spacious, easy and cheap to repair, have great safety ratings, and can easily be found for $1k-$5k.

If you're looking for a way to amp up the intensity and get yourself going again, then I would recommend getting rid of the car. Especially if you said that the payment is pretty high. Applying that payment toward debt each month may get you seeing results even quicker and help you stay on track to get debt free.

hoffse · December 2014

Just make sure that you're coming out ahead in the amount of your debt payments when all is said and done, especially if you plan to shorten the repayment period to 2-3 years (vs. the 5 you are stuck with currently). Remember that your payments will be higher if you shorten the repayment period, so you will need to be borrowing considerably less than what you borrowed to pay for your current car if you want to do that and have your car payment noticeably decrease. Not a problem, but make sure to look at some repayment calculators before you do it. Obviously shortening up the repayment period is always a good thing, but if you are concerned about the amount of money going out the door today, it's just something to keep in mind.

smbenevides1989 · December 2014

Xstatic3333 said:

This is more on the side of thinking out loud, but I would like to know what you would do.

I bought a brand new car in 2013, more than I should have paid for, but being stupid with money I bought it anyways. I'm able to make the payments just fine and am dealing with the mistake since I love my car. A thought popped into my head about selling the car for something that has more room, still great gas mileage, and not that old. The problem I have is that I still owe a lot more than its value and with our family trying to do a modified DR plan, we don't have much money to put down on another vehicle. How bad would it be to trade in my car and have a smaller loan to cover the remainder of both cars? I still have almost 5 years to pay on my current car (I know, stupid mistake!!) and the payment is already high itself.
I don't think it would be that bad. If you're trying to do DR's plan, I think I've actually heard him recommend that technique in the past (though @brij2006‌ is the expert there!) Also, good to see you around again! I'm on mobile and don't see siggys, so how's the new baby doing?

Baby is doing great. She is already 3 1/2 months old! Big sister absolutely adores her.

Here are my girls:

smbenevides1989 · December 2014

Yeah, I have to keep that in mind. I really wouldn't mind paying the same payment if it would mean getting out of the loan within the 2 or 3 year mark. My thought process is getting a vehicle around the $3000-$5000 mark and finance the rest, which would be anywhere between $10,000 to $13,000. Still considerably cheaper than what I am currently paying on.

This whole thing is making me sad. I have a stupid attachment to my car.

brij2006 · December 2014

What are the numbers on the car?

How much is owed? What is the Kelly Blue Book or NADA value of it for Private Party sale (don't use trade-in, since it will be much less)? What is the current payment, and how many years do you have left?

smbenevides1989 · December 2014

brij2006 said:

What are the numbers on the car?

How much is owed? What is the Kelly Blue Book or NADA value of it for Private Party sale (don't use trade-in, since it will be much less)? What is the current payment, and how many years do you have left?

I think I owe $21,000. I pay $430/month for a 7 year term (but I have about 5 years left to pay on it). The interest rate is high since I didn't have a good credit score back then. KBB is $11,897 so much less than I was expecting.

dragonstarjk · December 2014

smbenevides1989 said:

brij2006 said:

What are the numbers on the car?

How much is owed? What is the Kelly Blue Book or NADA value of it for Private Party sale (don't use trade-in, since it will be much less)? What is the current payment, and how many years do you have left?

I think I owe $21,000. I pay $430/month for a 7 year term (but I have about 5 years left to pay on it). The interest rate is high since I didn't have a good credit score back then. KBB is $11,897 so much less than I was expecting.

If you are super attached to the car and you don't have a problem making the payments, maybe you could talk to another bank about refinancing this loan and keeping the car. You say the interest rate is high because you had bad credit at that time. If you feel that your credit has improved, you could see who has better rates. Just make sure you choose one bank and stick to it so you are not hopping around having several people pull your credit. And make sure to check on loan fees; some of them are several hundred dollars and would eliminate any savings you might see.

I know this is not the most popular response but just throwing out another option. If you did this, I would also try to get the loan for a shorter term.

brij2006 · December 2014

smbenevides1989 said:

brij2006 said:

What are the numbers on the car?

How much is owed? What is the Kelly Blue Book or NADA value of it for Private Party sale (don't use trade-in, since it will be much less)? What is the current payment, and how many years do you have left?

I think I owe $21,000. I pay $430/month for a 7 year term (but I have about 5 years left to pay on it). The interest rate is high since I didn't have a good credit score back then. KBB is $11,897 so much less than I was expecting.

Oooh ouch hun. I'm sorry. :-(

I would recommend selling the car outright to a private party. Let's say you have to borrow the difference of $10k on the vehicle, then add $3k to buy a different used car (I would seriously get intense and buy something for $1k, knowing that it will only be used for a short period of time). You will have $13k financed. Just running rough numbers, but $13k at a 3 year loan would give you a $395 payment. Then I would apply that $35 monthly difference toward the lowest debt you have, and work through the debt snowball aggressively.

DR's rule of thumb to use for when to get rid of a vehicle is that the combined vehicles you own (so yours and your H's) should not exceed 50% of your income, and it should not take more than 2 years to get them paid off in your debt snowball. If it will take more than 2 years, or the value exceeds 50% of your income, then he recommends to sell it so you can keep the momentum going.
It doesn't mean that you're going to drive that $1-3k car for the next 5 years, but you gradually move your way up in vehicle. Purchase a $1k vehicle now, get your snowball going, and maybe that car lasts 1 year. Then stop your snowball and move up to a $3k vehicle. It takes a bit longer to move your way up in vehicle, but you may find that you're fine with driving that $1k vehicle because it's paid for and it gives you that much extra in your snowball to keep you moving forward on debt payoff.

FWIW: We stopped our snowball for a couple of months to save up for H's car that we bought for $3,100 in cash. Our goal is to have this car last us until we're debt free at the end of 2016. At that point, then we will be debt free, but will be able to put aside $1,500/month to buy him a better vehicle. We'll likely step up to something around $7-8k in cash, and hopefully have that last him 2-3 years.

ETA: I also ran the numbers if you were to finance that balance out over a 4 year period instead. It brings your payment to $300/month. I would plug that into your debt snowball calculator and see how much earlier it would be paid off when you have an extra $130/month to apply to the snowball.

smbenevides1989 · December 2014

Thanks @Brij2006. It looks like it's something I have to look into. I just have to find something that will be safe and reliable if I choose to go in that direction. I drive over 200 miles a week so I need something that will not fall apart.

My original plan was to pay off all the CC debt and student loans (everything should be paid off by the summer/fall) then start saving up to payoff DH's car loan before working on mine. If we get into the new frame of mind and stick to it, we should be debt free in 4 years. The only problem I have is trying to save up for a down payment on a house while hoarding money for the payoffs. It's all a balancing act that we are trying to learn.

als1982 · December 2014

I'm not a DR fan, but we are very debt averse and both H and I drive (and love!) beater cars. That said, in your case I would personally try and refinance instead of selling. While having a car payment sucks, it would make me sick to make a payment every month (for what might be years) on a car no longer even in my possession. If it were me, I'd focus on making extra payments to principal instead of getting rid of it entirely and chalk it up to a lesson learned.

brij2006 · December 2014

smbenevides1989 said:

Thanks @Brij2006. It looks like it's something I have to look into. I just have to find something that will be safe and reliable if I choose to go in that direction. I drive over 200 miles a week so I need something that will not fall apart.

My original plan was to pay off all the CC debt and student loans (everything should be paid off by the summer/fall) then start saving up to payoff DH's car loan before working on mine. If we get into the new frame of mind and stick to it, we should be debt free in 4 years. The only problem I have is trying to save up for a down payment on a house while hoarding money for the payoffs. It's all a balancing act that we are trying to learn.

***Stuck***

Try running the numbers to see how quickly it would be done if you were to not put aside the money for a down payment while paying off the debt, and instead put it toward the debt. It could possibly get you out of debt 2 years sooner, and then you can focus solely on saving an e-fund, then for the down payment on a house. Putting yourself in a much better financial position to buy, because you have much less liabilities when you do so.

abrewer5 · December 2014

als1982 said:

I'm not a DR fan, but we are very debt averse and both H and I drive (and love!) beater cars. That said, in your case I would personally try and refinance instead of selling. While having a car payment sucks, it would make me sick to make a payment every month (for what might be years) on a car no longer even in my possession. If it were me, I'd focus on making extra payments to principal instead of getting rid of it entirely and chalk it up to a lesson learned.

I agree with this advice. I know the payment sucks, and being upside down in the loan sucks but in this case I would not want to pay for 3-5 years on a car I no longer own. If I were you I would snowball to get rid of all your CC debt (if you have any) and from there start working on your car payment to get you level.

If you can re-fi for a lower interest rate but the same or shorter term I would try it. Like a PP said find out from the bank if it's a possibility before submitting the app and having them run your credit.

Is your H's car upside down too? Is there a reason why you would want to pay his off first?

ETA: Personal loans generally have a pretty high interest rate compared to a car loan so I would look at that factor too. If you can make the payments fine now and the payment for a personal loan would be the same or more I would just keep doing what you're doing and trying to throw as much as possible at the car loan when you can to get the principle down.

Erikan73 · December 2014

Things to consider, I'm not saying don't sell your car, just think of these things:

Gas mileage on current vehicle compared to vehicles you would be interested in
Insurance rates on current vehicle compared to vehicles you are looking at. Surprising, new vehicles can sometimes be cheaper then older cars because they have better safety features
With your current car, if you do oil changes & regular maintenance on it, it will be quite some time before you need to spend any money on major repairs. If you go for a different car, would you have to go with something older where you might have to invest money sooner into it for repairs?

brij2006 · December 2014

Another question. Have you been previously putting aside money for a down payment? If so, I would run the numbers to see how far ahead you would get if you were to apply what you have put aside, toward the debt snowball. Would it get all of the credit cards wiped out today? Then allowing you to snowball those payments onto the next one on the list and get it done even sooner.

If you were to apply all of savings (except $1k) toward debt, not put aside money for a down payment, and live on the strict budget. How would that make your snowball look? Including the car, would it get you finished with debt within 2 years instead? If that's the case, then I would keep the car and work on it with your intense snowball.

I know that many people do a modified version of DR's plan, but honestly it's the intensity that really keeps people sticking with it. Plug in the numbers to see how much of a difference it would make if you were to do his plan entirely (stop retirement contributions, only have $1k in savings, cut cable/travel/extras, and not put anything into savings). Sometimes it takes putting the numbers in and looking at the scenario to realize that you probably could keep the car and have it paid off in a reasonable amount of time (especially if you love it), or maybe this is where you plug all of that in then take your car out of the equation (and only adding in the remaining balance) and realize that you could have everything done even sooner.
You may realize that if you did his steps with the intensity he describes, then you can be debt free in 2 years and putting a lot more aside each month toward a down payment on a house. Rather than slowly working at multiple big goals at the same time, you will achieve smaller goals much quicker by focusing on them 1 at a time.

smbenevides1989 · December 2014

Right now, we aren’t putting any money towards a down payment since we want to pay off the debt first. Any extra money DH makes goes into a savings account each week and then I put it towards a bill at the end of each month. We were going to pay off DH’s car first since his balance is much lower than mine (one good thing about my mistake is that we didn’t make the same mistake with his) and we were going to snowball the extra cash into my loan.

I was playing around with my spreadsheet. If we were to pay off all CC debt and SL debt, I could pay off both cars by Dec 2017 without refinancing my car. I’m always putting in a little extra to help pay off quicker. I would like to refinance sometime this year, but I’m probably going to wait until the fall to do that (unless the interest rates start to go up, then I will refinance sooner).

Once everything gets paid off, it looks like I can put everything away in savings and have the 20% down payment by 2018/2019.

Thanks everyone for the input. From the way it looks, I’ll most likely keep the car and continue what I’m doing.

simplyelise · December 2014

You most likely cannot refinance the vehicle loan since you are so underwater on it. Was your loan through a dealership?

Are you able to afford the minimum payment AND work the debt snowball? I'd probably keep paying on the car until you've got the other debts under control. Or payoff everything except the student loans and then focus on your car paydown since the interest rates are likely so much higher than the SLs.

brij2006 · December 2014

That sounds like a great plan!

I would just start with your smallest debt first, no matter what it's on, and work your way up from there. Only making minimum payments on everything else in the meantime (including your car). Every little bit put toward the smallest debt will get it paid off that much sooner and allow you to snowball that payment onto the next debt even quicker.

smbenevides1989 · December 2014

@simplyelise yes, I'm able to pay the car while paying down everything else. I was just playing around with the idea to see what would be better. My student loans are a combined total of $8000 so I just wanted to pay them off. I'm just going to have to be patient with it.

Sisugal · December 2014

IF your credit has improved, I would see about refinancing the vehicle you currently have at a lower interest rate.

Xstatic3333 · December 2014

smbenevides1989 said:
Right now, we aren’t putting any money towards a down payment
since we want to pay off the debt first. Any extra money DH makes goes into a
savings account each week and then I put it towards a bill at the end of each
month. We were going to pay off DH’s car first since his balance is much lower
than mine (one good thing about my mistake is that we didn’t make the same
mistake with his) and we were going to snowball the extra cash into my loan.

I was playing around with my spreadsheet. If we were to pay
off all CC debt and SL debt, I could pay off both cars by Dec 2017 without
refinancing my car. I’m always putting in a little extra to help pay off
quicker. I would like to refinance sometime this year, but I’m probably going
to wait until the fall to do that (unless the interest rates start to go up,
then I will refinance sooner).

Once everything gets paid off, it looks like I can put
everything away in savings and have the 20% down payment by 2018/2019.

Thanks everyone for the input. From the way it looks, I’ll
most likely keep the car and continue what I’m doing.

Sounds like a good way to go. At least you like the car and can make the payments while keeping your snowball going! It can't hurt to look into refinancing just in case (keeping fees in mind like PP mentioned). Metro CU tends to have good rates.

Knottie37373131 · January 2015

I would look into refinancing. My fiance had this problem as he bought a car at a small dealership and financed his vehicle at a place that lets people without credit buy cars. He had absolutely no credit and has never had a credit card. His rate was at 24.99% and he was paying almost $400 a month and really made no dent in the principal. Luckily, I was able to talk to my dad about it who called around and talked to a few of his banks and he found one that would be able to give us a rate of 4 or 5% and shorten his borrowing by about a year by opening a bank account, setting up direct deposit, using my dad as a co-signer. Do you have anyone who would be willing to co-sign?

simplyelise · January 2015

You're really really really unlikely to be able to refinance since you owe almost double what the car is worth.

I think your initial idea about trading in and getting a smaller loan might be the best choice, assuming you cannot refinance

WWMMD? Car question

Re: WWMMD? Car question

Choose Another Board

Search Boards