The Survival Podcast Forum

Finance and Economics => The Money Board => Topic started by: 1022 on February 18, 2014, 05:47:19 PM

Title: Selling a Car to Partially Pay off the Loan
Post by: 1022 on February 18, 2014, 05:47:19 PM
Hello there.

I am 100K in debt, not including my mortgage, because of poor money management. I have taken steps to pay off my debt in less than 3 years. Unless I end up injured or I commit a crime I have guaranteed work, and almost more overtime than I can handle. 

The situation follows thus:

I made some very poor choices when it comes to buying cars. I bought 2 new cars within 2-3 years. I took the first car and traded it in and got another new car, the payments are the same. There is a zero 0% interest rate, but I will be making car payments for quite a while. I don't need the car. My wife has a car that is fully paid off and it is reliable. I live in a very small town in Northern Ontario and most of time the cars are not driven. I take them out once a week down the highway just so they don't sit for too long. If I pay off the car early there is a small penalty of $50.

The bank has a lien on the car. I owe 27K on it, because in reality I am paying for 2 cars. To sell the car for cash, and not to get into a new car, I have to take a loan out and pay the car off. Looking into the resale value of my car I see I can get between $12k to $16 conservatively. If I were to sell the car every cent would go to pay the debt.

About 75% of the debt that I owe is interest free. If I take out a loan, and then put the money I get from selling the car back on the loan, I can take the remainder of what I owe from the car loan and pay it off with my credit card where I will have 0% interest for one year, with a onetime 1% fee of the money I transfer.

Should I keep the car and pay it off as quick as I can, or sell it and take the hit?

I am also using the snowball method to pay off my debt and as a result right now the car is the second last thing to pay off on the list. If I take out a loan it will move up to third or fourth on the list to be paid but I will have about 12-16k knocked off my entire debt.

I have also reached the point where I would rather be debt free than have cool stuff. I am also following Dave Ramsey`s financial makeover.
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: bigbear on February 19, 2014, 02:14:53 PM
The proverbial, "It depends."  It sounds like you only need 1 car and being debt-free has moved up your life values recently.  Based on those two factors, I say sell the car.  Not only will it help financially, it'll be a practical step in applying your values. 
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: FreeLancer on February 19, 2014, 04:03:42 PM
It's certainly not a straight forward decision, mostly since you're upside down on the loan. 

If you sell the car you are still making payments on something that you no longer are able to use anymore, which might be an issue at some point where your wife's car isn't available and you need a vehicle.  It would really suck to have to get another car when you're paying off a previous car that you no long own.

But, on the other hand, if you are no longer having to pay insurance, registration, and maintenance costs, those savings could be applied to paying down your debt at a faster rate, which might make sense in your situation.

Either way, I think the most important thing is that you remain committed to paying off your debt. 
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: Zef_66 on February 20, 2014, 10:49:10 AM
I agree with the "It Depends" answer.

One issue, is how committed are you to getting debt free. If you sell the car, are you going to be likely to decide you "need" a car again and go out and buy another a year from now? If so, keep the one you have and keep paying. If you are truly committed to paying off your debt and being debt free, then sell the car. It may seem to cost you a small bit more, but in the end you will save with the mentioned gas, insurance, registration, etc.
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: Morning Sunshine on February 20, 2014, 10:57:17 AM
I have a friend that homeschools 4 children (which, let's be honest, often means car-schooling with all the running around to karate, music, gymnastics, swimming, etc).  Her hubby works from home.  They have one vehicle, an older minivan.  They do a lot of scheduling around who needs the vehicle that day.  And on the rare times where they need a second vehicle, either for transportation or a truck for moving things, they rent one for a few hours.  She claims that it saves them a whole lot of money between the fees, the insurance, etc.  As rarely as we drive our second vehicle (we homeschool and work-from-home as well), I have thought of doing this.  Only I live CLEAR out in the boonies, whereas she lives in town close to the car rental place.
My point with this story is that even if you decide to go down to one car, it doesn't have to be a permanent thing.
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: 1022 on February 20, 2014, 01:40:15 PM
My wife and I are totally committed to being debt free as quick as we can be. Because I live in a small town I can walk just about anywhere. As a bonus the mother in law moved to town and if we were in a jam it would be no problem to borrow her car, so that is not a worry. Being that are town  is carved right out of e boral forest I will be getting a truck once the debt is paid off and I have saved the money for another vehicle. I will not make the same mistake in buying a new car again. I will let someone else pay the depritiation.

I got some insight listening to the Dave Ramsey show, and I got my answer by changing the question. If I were in he same postion now except that I had one car and 85k in debt would I borrow money to get a car? No, I would not, so I guess the car goes.
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: windchill on February 20, 2014, 07:01:26 PM
Sell it as soon as you can to avoid adding mileage and further depriciation, door dings, etc. that will lower the value.
Title: Re: Selling a Car to Partially Pay off the Loan
Post by: buckeye on March 07, 2014, 11:53:53 PM
Sell it as soon as you can to avoid adding mileage and further depriciation, door dings, etc. that will lower the value.

Ding. Ding. Ding.  Sell it and buy at least a 5 year old used with good bones.

From a prep standpoint, look at 1980s and older vehicles. Get a toolset, learn to maintain your vehicle. And since your annual mileage is really low, MPGs really don't matter from a total cost standpoint.  (For my wife and I, we are looking at an ~$10k, 10 year old, full sized 12-15mpg used Toyota SUV for her and eventual family versus a new or gently used ~$30k, 25-30mpg, mid sized SUV.  From my calculations on just our expenditures, the cash going out of our checkbook each month, [ignoring insurance, depreciation, interest, etc, but accounting for a couple thousand in initial preventative maintenance on the used option], it would take over 11 years of driving the gas guzzler at double her current annual mileage before the cost curves intersected -- essentially, it would take owning the new car 11 years, accounting for just sticker price and fuel costs, before the fuel savings from the new car would incur sufficient fuel cost savings to financially justify not going with the old one).   Engine efficiency is really the only difference -- creature comforts and essential cockpit technology are the same between a 2004 and 2014 vehicle...  And if you buy old enough, eventually the vehicle begins to appreciate (when accounting for maintenance costs it's still an expense but it's nice to have an asset risign in value).  And there's something about mechanical utilitarianism of older cars that gets my goat.

To reiterate, NEVER BUY NEW.  Not only are penalized with SEVERE depreciation costs, you also lose an add'l 5-10% on sales tax, you pay higher insurance premiums, you pay interest on your loans, etc. 

Even with older cars, they're still expenses, but you're spending that ~$100-200 per month on maintenance maintains the value of your vehicle -- in a sense a dilapidated non-functioning used vehicle is worth only parts/scrap while repairing it is restoring value...