Mr.
Bilker,
I really enjoy reading your
newsletter and have gotten several good tips from it. My problem is
that I have a Dodge pickup (pre-owned) which I owe about $13,000 on, and
it is only worth around $9,000. I am about halfway through a
five-year loan and am paying $524.00 a month.
I married recently and
am having a baby soon, so I need to find a way to either get rid of
this pickup or lower the payments. What would you recommend?
Any
advice would be appreciated.
Thank you.
Tracy
Tracy,
Thanks for letting me know that you
enjoy reading DebtSmart! Congratulations on your marriage and
pregnancy!
You're
certainly in a tough position with the truck payments. It's good
that you purchased the truck used because the depreciation would be
even greater if that weren't the case. Although it's still difficult
having that $4,000 difference between the value of the vehicle and
the loan amount.
Using my DebtSmart
Loan Calculator, and with the fact that you have about 2.5 years to
go with a $13,000 balance, making monthly payments of $524, I have calculated
that the original purchase price is about $22,000 at an
interest rate of 15%! Boy that's a huge interest rate and certainly
one of the main reasons that there is such a big difference between
the value of the truck and the unpaid balance.
Here are a few suggestions of things that I
would consider implementing if I were in your situation. That doesn't mean that you
should necessarily do these, it's just "what Scott would
do":
Refinance the outstanding amount
I
would look into finding a low-rate credit card, a rate lower than
the current rate on your auto loan, and paying off the truck with
that card. The rate I would use is 0% if possible. I have plenty of
0% offers that would cover that cost and you may too. Call your
credit card banks to find out if they will give you 6 months, or
one year, if you transfer $13,000. Even a fixed 3.99% would be great
and save you bundle of cash! You would also have the option to make minimum payments,
which may
increase the overall cost of the truck. However, it would reduce
your payments. For example, with a 2% minimum payment, your monthly
cost would drop to $260 from $524. And, if the rate is 0%, then it
costs you nothing to do this!
Sell the truck
Get rid of the truck
and eat the $4,000. You could then pay off that $4,000 with a
low-rate card and reduce that cost to say $80 per month. The
downside is that you will probably still need a car. If that's the
case, then you should hold on to the truck.
Trade in the truck
Get another car
(used) that's less expensive and roll that $4,000 loss into the
next vehicle. Although this is an option, you have to do the math
carefully to make sure that it works in your favor. Finding a
quality vehicle is also important. The toughest part here is going to be negotiating
with a dealer, making this my least favorite option. However, I do
mention it for completeness.
Personally, refinancing the
outstanding amount with a credit card is what I would do to reduce
that cost. I would want to hang on to the truck because I know its
condition and wouldn't want to risk having to add the cost of
fixing an unknown vehicle.
Hope that helps!
Regards,
Scott
| " |
I liked the fact that
several options were offered instead of a
one-size-fits-all solution. The only part of the article
that I felt was overlooked was the fact that the reader
has an interest rate of 15% on a vehicle so odds are the
owner does not have the credit to get a credit card with
a lower interest rate. If this were possible we would be
doing it. Adding the realistic facts. I enjoy reading
this newsletter and very often take away from it advice
that is both useful and practical."
--Dawn Schley
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I like the options that you
gave her. I am in the same boat my interest rate is
about 14% and i need the car. I don't know who will
refinance me with my low credit score."
--German
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I like that you gave three
options. I would also check into refinancing the truck
maybe through a credit union at a much lower rate than
he is paying right now. I would stay away from credit
cards and maybe even car dealers. I would use the cc
only if I could get a 0% rate or very low rate. thanks
for all your advise. I love reading the letters and pass
on much of the information."
--Lou Ann
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Good article. Like all the
options you provided. I think this might be my first
(possibly second), newsletter. There's some really
useful and practical information to be gleaned. Glad I
found your website!"
--Diane D.
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This is a very appropriate
article. It deals with a problem people may be having
right now, especially with the cost of cars so high and
the uncertainty of the automobile industry at this time.
Like the others who commented, I liked that several
alternatives were given to choose from. It's always nice
to have some kind of a choice! Although it is true that
people with good credit wouldn't have such a high
interest rate, if a 0% credit card can be obtained, not
only is there a savings on the loan, paying off the
credit card is bound to increase the credit rating. I
know what it's like to be scared and in-debt. This would
help a lot--this article offered 3 solutions--Good Job!
With an expert like Scott
doing the article, there's nothing I know that could be
any better. It was great.
I'm still in debt, but I'm
no longer scared. When I WAS in debt and very scared, it
would have helped a lot to have known about DebtSmart.
Feeling scared and alone is worse than having the debt.
Thank you, Scott."
--DebtSmart
Reader
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Stay away from credit cards,
the most important thing to learn from this article is
that you cannot afford a truck that costs $22,000 as
much as the reader thinks they can. $524 is way too much
for anyone to make payments on a car. They have to think
about what they do with a truck that will return them
$524 a month as an investment. Most people do not
understand that a car if looked as an investment is a
horrible instrument. So buy a cheap reliable $1000 Honda
civic and realize you are not as rich as you think you
are. It is
irresponsible to suggest that moving a secured loan into
a non-secure loan is a good idea. The reason credit
cards are unsecured is that they terms of the rates and
limits can change, as we see now in the economy. Credit
card companies will change rates on this reader since he
already seems to have poor credit. Putting him at the
mercy of credit card companies is worse. I would suggest
this reader to take things into their own hands and sell
the truck private party to get the best price before
buying another car. When he sells the car and the deal
is done, then he should take a very long time and buy a
used reliable $1000 Honda or Toyota and save $1000 for
unpredictable repairs. Use this car until the cows come
home and never buy a car over $5,000 again! and never
get a loan over 8% interest. If anyone offers you
anything it means YOU SHOULDN'T BE BUYING A CAR."
--Joseph Wu |
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