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I'd like to know if anyone has an opinion on my current situation:
1. I have poor credit (about 620 score)
2. $12,000 in credit card debt with an average of 17.9% APR across all cards
3. I'm paying about $800/mo towards my credit cards
4. An auto loan with about $12,000 payoff amount and 10.9% APR
5. I'm paying $350/mo for my auto loan
6. High insurance rates due to recent accidents, theft, and tickets
7. I'm paying about $450/mo for my full coverage auto insurance
I just got a bonus from work and have some money saved and want to better my situation. I've got just over $10,000 saved as of today.
My question is:
Would it be better to save a little more money and payoff my auto loan so I only need to carry liability insurance (about $120/mo vs. $450/mo) and not "waste" money paying the insurance company?
OR
Would it be better to payoff my credit cards to try and increase my credit score?
I'm looking to buy my first house in about a year from now when I get my next work bonus. I was going to try and do it this year, but I wouldn't be able to afford my mortgage along with my auto loan and high insurance and credit card payments.
Any advice, comments, anything would be very helpful.
Pay off the credit card debt. Paying off the car and going with just liability insurance doesnt sound like a good idea to me considering you admitted to have accidents. Slow down and drive better, in a couple of years your rates will start to drop.
The vehicle is about 9 years old (2002 Range Rover) and is barely worth the $12,000 I owe on it.
My insurance is through the roof due to the following:
1. I totaled one car in December 2009 (partially my fault) when my insurance paid out $20,000
2. My motorcycle was stolen in November 2010 (not my fault) when my insurance paid out about $8,500
3. Two traffic tickets on my motorcycle in the last year which resulted in a few points on my license
I'm not worried about only carrying liability insurance at this point. It's just really aggravating having to shell out $3,600/yr on insurance when I've had an impeccable record for over 15 years and now only recently have I had problems, a few of which weren't even my fault.
I think the answer is to pay down the credit card debt, but I just wanted to know if anyone out there thought it might be a good idea not to "waste" money on high insurance rates which is effectively taking my 10.9% auto loan and hiking it up to about a 30% APR "payment" to own my car.
The vehicle is about 9 years old (2002 Range Rover) and is barely worth the $12,000 I owe on it.
My insurance is through the roof due to the following:
1. I totaled one car in December 2009 (partially my fault) when my insurance paid out $20,000
2. My motorcycle was stolen in November 2010 (not my fault) when my insurance paid out about $8,500
3. Two traffic tickets on my motorcycle in the last year which resulted in a few points on my license
I'm not worried about only carrying liability insurance at this point. It's just really aggravating having to shell out $3,600/yr on insurance when I've had an impeccable record for over 15 years and now only recently have I had problems, a few of which weren't even my fault.
I think the answer is to pay down the credit card debt, but I just wanted to know if anyone out there thought it might be a good idea not to "waste" money on high insurance rates which is effectively taking my 10.9% auto loan and hiking it up to about a 30% APR "payment" to own my car.
Thanks again
Ok, say you total your car, where are you going to get the money to buy a new one without insurance?? This is what full coverage will do for you. It is foolish to drop to liability only on a car worth $12,000 with no resources to replace that car.
Drive more responsibly and your rates will drop.
Personally, with no money in reserve I would keep that money in savings until your next bonus, keep paying down on your loans/credit cards. You are going to get hit with a high interest rate on a house if you can even qualify for a loan. I would take that out of the equation until you have your CC debt paid off.
I would pay off your credit cards completely. Then I would take the $800 you used to pay towards your credit cards and add that to your car payment. Paying $1150 a month, you'll have that thing paid off in no time. This will greatly improve your credit score. Once the car is paid off, take that $1150 a month and sock it away for your down payment for a house.
That 10.9% auto loans shows that things have gotten out of control with your credit and income to debt. I'd do whatever I had to do to get rid of the debt for your futures sake. Your being drained of any wealth but interest.You look like your futher than a year from buying a house as its going to be really expensive if you qaulify.
Ok, say you total your car, where are you going to get the money to buy a new one without insurance?? This is what full coverage will do for you. It is foolish to drop to liability only on a car worth $12,000 with no resources to replace that car.
Drive more responsibly and your rates will drop.
Personally, with no money in reserve I would keep that money in savings until your next bonus, keep paying down on your loans/credit cards. You are going to get hit with a high interest rate on a house if you can even qualify for a loan. I would take that out of the equation until you have your CC debt paid off.
i agree with this post but would like to expand a bit more.
so you have $10,000 (assuming this includes your bonus). do you have any other sort of emergency savings? how is your job stability?
your credit score possibly effects your insurance rates, so you could benefit in a slight drop in insurance just by paying down your credit cards slightly, and improving your credit score, and shopping your insurance elsewhere.
i also would not pay off your auto loan with the goal of eliminating comprehensive coverage, unless you were disciplined enough to save the amount you save in case you get into another accident.
so in short:
1. ensure you have some amount of emergency savings cash (6 months is the general rule of thumb)
2. pay down some of your credit with the $10,000 to improve your credit score.
3. shop around your insurance for a slightly better rate, with your slightly better credit.
that's what i would do. and keep up with the payments you are making. sounds like you are generally on the right track.
also - look into taking a defensive driver course to remove the points and/or get a slight discount on your insurance. many organizations offer them (state or AAA)
QUESTION- Do you have 6+ months of living expenses saved as an "emergency fund" (ie, not house down payment fund or car replacement fund) in case you lose your job or have a huge medical emergency or other emergency? If not....put your ENTIRE BONUS into your emergency fund until you hit the 6 months of expenses mark.
ADVICE- If you do have the emergency fund covered, I would pay off your credit card first. Then, roll the money you were paying towards credit cards into paying off your car loan faster. I had a wreck in 2008 that was my fault and my insurance rates (full coverage on 2002 BMW) are back down to $100/ mo now. I would bet that your rates will fall dramatically by the end of 2011 if you don't have any more incidents.
UNSOLICITED ADVICE- I would highly caution you to not buy a home until you:
1) have 6+ months of living expenses (inlcuding projected mortgage/ tax/ insurance expenses) saved
2) are fully-funding your retirement accounts to the max the law allows ($16,500/ year for 401k ) + $5,000/yr IRA.
3) have a 20% down payment saved
Homes are INCREDIBLY expensive to own and as soon as you buy one, something will break. It's almost a law that within a month of purchasing, you'll be replacing a dishwasher or spending $3,000 to trim your trees after a major storm. It's not something to be rushed into doing until you can really afford it.
ITA agree with posters who say that you should NOT consider buying a house next year. You're not financially stable enough. You'll only be setting yourself up for problems. You need the emergency fund, credit cards paid off, car loan paid off, and a 20% down payment saved up. I don't see that happening next year.
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