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Other things = other debts (credit cards, student loans) I live pretty modestly. I have cut back my spending tremendously. I am reading books, primarily Dave Ramsey, on how to pay off debt, build savings, etc. He just recommends that the first steps is to sell your car, and if upside down get a loan for the difference. I am assuming this advice is geared towards individuals with good credit, though. I have reached out to a non profit debt consolidation program so they have lowered interest and fees on my credit cards. I put 360 towards that every month. 650 towards my car. Right now I am not able to pay more than minimums because I am spread too thin. Which is why I feel like I need to get rid of my car.
Ok, that's better of a situation than I thought. At 3% interest, most of your car payment is going to principal, not interest. Even if your interest payment is $100/month (which would correspond to a $40k balance - you didn't specify the balance on your loan) that leaves you with $550/month, or $6600/year to principal. So even if you cannot sell the car you will get rightside up. In two years you'll have paid down over $13k, so even if your car loses $4k to additional depreciation, you'll at that point be only $3k upside down and can get out with a small personal loan or credit line. You could take a $6k loan, $3k to sell car and $3k to buy a beater and pay the sales tax on it. Also by making your payments on time on all of your debts for those two years, you will have good credit and can get a decent rate.
I can't think of a way out of it for you. Maybe it would be best to just pay down the highest interest credit cards first and then just tackle this loan once the others are paid off (since it's 3% which seems the lowest). And maybe by that time you won't be upside down and can sell the car and get a good beater instead while you make progress on other debts.
Another option... get a temporary second job to help pay down things. This time of year you could get a seasonal job and just try it out for a while (see if working two jobs is doable for you). Good luck.
Other things = other debts (credit cards, student loans) I live pretty modestly. I have cut back my spending tremendously. I am reading books, primarily Dave Ramsey, on how to pay off debt, build savings, etc. He just recommends that the first steps is to sell your car, and if upside down get a loan for the difference. I am assuming this advice is geared towards individuals with good credit, though. I have reached out to a non profit debt consolidation program so they have lowered interest and fees on my credit cards. I put 360 towards that every month. 650 towards my car. Right now I am not able to pay more than minimums because I am spread too thin. Which is why I feel like I need to get rid of my car.
Numbers become essential here and it's where I strongly disagree with Ramsey's "Feel good finance" approach. That quick answer of "sell your car" is often bad advice.
If you get an unsecured personal loan, you're probably going to be looking at an interest rate of 10% or so. Your car loan is so low that it's not worth it to try. You already have 12k of unsecured debt at a car loan rate and there's no way you'll beat that rate.
To really give you advice, the value of the car would need to be known, but let's take an estimate and say your car would sell for $10k and buy another car at $2k
8k of debt at your car loan rate would go away($10k - $2k for the new car which you have to borrow for)
but the huge problem is that 12k of debt at your car loan rate would jump to your personal loan rate.
Simple interest over a year:
Today - $22k @3% = $660
After - $12k @ 10% = $1200
If your car is worth more, it changes things a bit, but assuming you're looking at a 10% unsecured loan rate, your current loan balance would need to be $40k (So you're talking about selling your car for $28k).
($40k loan would mean you're currently paying $1200 a year in interest, so you break even).
On top of that, an older car will likely have a shorter loan period, meaning that your monthly payments might not even drop.
End result: You could pay more interest, same monthly payments, and just have to worry about car repair bills coming up sooner.
My Suggestion: You may be able to reach out for a possible refinance through Hyundai and see if they'll extend your terms at a slightly higher rate(maybe 3.5% but push the deadline out a year or something similiar). That'll lower your monthly payments a bit(but cost you more overall). At least then you can hit the CC's a little harder though.
Once you're underwater like this, you're kind of limited in your ability to do anything about it.
If you gotta sell your belongings to take care
of debt then something ain't right. Find other
avenues to pay off your debt like a better job
for instance.
If I were you I'd keep the car, negotiate better
financing deal on said car and atleast think about
bankruptcy for any other debt that's not a student loan
if i just could not see myself paying my unsecured
debt long term.
I have a good job, the best paying job I could find at my education and experience level. That's not an option.
Numbers become essential here and it's where I strongly disagree with Ramsey's "Feel good finance" approach. That quick answer of "sell your car" is often bad advice.
If you get an unsecured personal loan, you're probably going to be looking at an interest rate of 10% or so. Your car loan is so low that it's not worth it to try. You already have 12k of unsecured debt at a car loan rate and there's no way you'll beat that rate.
To really give you advice, the value of the car would need to be known, but let's take an estimate and say your car would sell for $10k and buy another car at $2k
8k of debt at your car loan rate would go away($10k - $2k for the new car which you have to borrow for)
but the huge problem is that 12k of debt at your car loan rate would jump to your personal loan rate.
Simple interest over a year:
Today - $22k @3% = $660
After - $12k @ 10% = $1200
If your car is worth more, it changes things a bit, but assuming you're looking at a 10% unsecured loan rate, your current loan balance would need to be $40k (So you're talking about selling your car for $28k).
($40k loan would mean you're currently paying $1200 a year in interest, so you break even).
On top of that, an older car will likely have a shorter loan period, meaning that your monthly payments might not even drop.
End result: You could pay more interest, same monthly payments, and just have to worry about car repair bills coming up sooner.
My Suggestion: You may be able to reach out for a possible refinance through Hyundai and see if they'll extend your terms at a slightly higher rate(maybe 3.5% but push the deadline out a year or something similiar). That'll lower your monthly payments a bit(but cost you more overall). At least then you can hit the CC's a little harder though.
Once you're underwater like this, you're kind of limited in your ability to do anything about it.
I appreciate you breaking this down for me. I hadn't really thought much about how good of an interest rate I have on this unsecured debt. My car is currently worth between 22-25k and my loan balance is 35k. So between 10k and 13k upside down. Other than extending my loan, which I feel will only compound this problem, would you say that staying in it and making my payments would be best, as most of the money goes to principle? I considered still trying to save up the cash for another car just to keep the miles low on my car to hold its value.
I can't think of a way out of it for you. Maybe it would be best to just pay down the highest interest credit cards first and then just tackle this loan once the others are paid off (since it's 3% which seems the lowest). And maybe by that time you won't be upside down and can sell the car and get a good beater instead while you make progress on other debts.
Another option... get a temporary second job to help pay down things. This time of year you could get a seasonal job and just try it out for a while (see if working two jobs is doable for you). Good luck.
I am thinking about another job, but the rub is that I am in grad school full time and working full time and don't know if there is enough time in the day and week for me to get another job. But something I am considering.
Ok, that's better of a situation than I thought. At 3% interest, most of your car payment is going to principal, not interest. Even if your interest payment is $100/month (which would correspond to a $40k balance - you didn't specify the balance on your loan) that leaves you with $550/month, or $6600/year to principal. So even if you cannot sell the car you will get rightside up. In two years you'll have paid down over $13k, so even if your car loses $4k to additional depreciation, you'll at that point be only $3k upside down and can get out with a small personal loan or credit line. You could take a $6k loan, $3k to sell car and $3k to buy a beater and pay the sales tax on it. Also by making your payments on time on all of your debts for those two years, you will have good credit and can get a decent rate.
I mentioned this in a different comment below, but if I am paying a significant amount down each month with my payments, do you think it would be a good idea to try to find a cheap car to use as a daily driver and park mine as to keep from racking up miles? This way I would keep the low interest rate on car and the upside down part of the debt, have a reliable car as back up (emergencies), and keep the value up?
I appreciate you breaking this down for me. I hadn't really thought much about how good of an interest rate I have on this unsecured debt. My car is currently worth between 22-25k and my loan balance is 35k. So between 10k and 13k upside down. Other than extending my loan, which I feel will only compound this problem, would you say that staying in it and making my payments would be best, as most of the money goes to principle? I considered still trying to save up the cash for another car just to keep the miles low on my car to hold its value.
This is where it helps to figure out what problem you're trying to solve.
Are you trying to increase monthly cash flow because your payments are too tight?
-or-
Are you trying to increase your networth because of the interest expenses?
Unfortunately, the solution to those problem are usually completely opposite(unless you can increase income, which is the only time they usually align). Put simply, when you have debt, if you pay more per month, it hurts your cash flow, but helps your net worth.
Cash flow is an immediate problem, and often requires a quick fix at long term expense(which would be what extending the loan terms does. If you think you're going to start resorting to CC usage because you can't get by, then you need to fix this even if it costs you more in the long run. A slow climb out of debt is better than simply turning Car Loan debt into CC debt by paying down one and running up the other.
But based on your numbers, you're already looking at about a close to 5 year loan(4.83 years left if you're paying 650/month on a 35k loan at 3%) so I doubt they would extend it much beyond that. So that options off the table.
You're already through the worst part of the depreciation, so you might as well just stick it out. I wouldn't buy a new car though, just keep this one maintained and drive it to the ground. Miles are only part of the deprecation calculation. A 2014 car with 5k miles is worth significantly more than a 1994 car with the same 5k. You'll slow the depreciation, but not stop it.
This is where it helps to figure out what problem you're trying to solve.
Are you trying to increase monthly cash flow because your payments are too tight?
-or-
Are you trying to increase your networth because of the interest expenses?
Unfortunately, the solution to those problem are usually completely opposite(unless you can increase income, which is the only time they usually align). Put simply, when you have debt, if you pay more per month, it hurts your cash flow, but helps your net worth.
Cash flow is an immediate problem, and often requires a quick fix at long term expense(which would be what extending the loan terms does. If you think you're going to start resorting to CC usage because you can't get by, then you need to fix this even if it costs you more in the long run. A slow climb out of debt is better than simply turning Car Loan debt into CC debt by paying down one and running up the other.
But based on your numbers, you're already looking at about a close to 5 year loan(4.83 years left if you're paying 650/month on a 35k loan at 3%) so I doubt they would extend it much beyond that. So that options off the table.
You're already through the worst part of the depreciation, so you might as well just stick it out. I wouldn't buy a new car though, just keep this one maintained and drive it to the ground. Miles are only part of the deprecation calculation. A 2014 car with 5k miles is worth significantly more than a 1994 car with the same 5k. You'll slow the depreciation, but not stop it.
My cash flow is ok, but there is essentially nothing left at the end of each month. I would like to do a couple of things
1. Pay off credit cards
2. Pay down car as much as possible
3. Prepare for student loans
4. Be in a position to save money for emergencies
I mentioned this in a different comment below, but if I am paying a significant amount down each month with my payments, do you think it would be a good idea to try to find a cheap car to use as a daily driver and park mine as to keep from racking up miles? This way I would keep the low interest rate on car and the upside down part of the debt, have a reliable car as back up (emergencies), and keep the value up?
It is still going to depreciate due to age. We are coming up on 2015, and your car will be another year older. It is never going to be worth more than it is worth right now. And two cars means more money for insurance, registration, and maintenance. Myself, I would not go the two car route.
Have you investigated what sort of rate you can get on a personal loan from your bank? From Lending Club? Right now we're just guessing, right? Find out.
Can you manage without owning a car at all, or is that not feasible?
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