Should I snowball the car?

[junkmail]

Here's my updated scenario after starting the DR debt snowball

Owe:
Mattress- $2,682 at 0% interest. Monthly is $145
CC- $2,569 at 18% Monthly is $75 (roughly)
Auto $21,500 at 0% Montlhy is $420
House $126k at 5.5% Monthly is $1,100 (roughly)

Utilities/Insurance/CellPhone: $509 a month

As of today, I've paid off several CC around $3k

My EF is at $1,000.00

My monthly net income- $2,200 to $3,500 depending on the month

I'm focused on paying off the CC and Mattress.

My question - I have a zero percent auto loan. Should I make the regular payments and focus on savings or debt snowball the car?

[junkmail]

Or should I sell the 2010 car and buy something at $10k

[disneysteve]

Originally Posted by junkmail

Here's my updated scenario after starting the DR debt snowball

Auto $21,500 at 0% Montlhy is $420

My question - I have a zero percent auto loan. Should I make the regular payments and focus on savings or debt snowball the car?

Originally Posted by junkmail

Or should I sell the 2010 car and buy something at $10k

For DR's debt snowball, the interest rate does not matter. So if you actually want to follow his plan, it would be part of your snowball. That said, your second question is more important. You have a very expensive car that you really can't afford. Your car payment, if you have one at all, shouldn't exceed 10% of your monthly income and for no more than 3 years. $420 is 19% of your $2,200 base income and I'm assuming that was a 5-year loan.

How much could you get for the car today? If you can get out of it and get a personal loan for any amount you are upside down on the loan, that would go a long way to clearing up your situation. Far better to owe 6K or 7K than over 21K. Sell it and buy something for 5K or less until everything is paid off. Then you can save up cash to upgrade to something better if you wish.

[dczech09]

I going to follow on Steve's logic. If you cannot pay off the car within two years, sell it. You make as much as I do (I also have a variable income), however my minimum payment on my car is HALF of what you pay. A $21,500 car loan is a little over the top; you take home approximately $35,000 per year so that car loan is 61% of your income.

With a car payment that is 19% of your monthly income, your debt to income ratio is too high once you add in the mortgage, credit card, and mattress. IMHO, you should sell the car. Hopefully you can get a little profit from it and purchases a reliable car for cheap. With a $420 car payment, you will barely get a snowball moving.

[dczech09]

I will also chime in a second time to tell you that you DO NOT have a zero percent car loan. While the lender is not charging a nominal interest rate, the fact is that a car valued at $21,500 will drop in value rapidly. That car of yours will likely be worth about half in a few short years. That is not zero percent. Essentially, you will go underwater with your car (you will owe more than it is worth at some point).

[disneysteve]

Originally Posted by dczech09

you take home approximately $35,000 per year

With a car payment that is 19% of your monthly income, your debt to income ratio is too high once you add in the mortgage, credit card, and mattress.

Yes, your home payment should be no more than 28% of income. Assuming an average monthly income of $3,000 (is that pretty accurate?), your payment is 36% of income. Your total debt payments including the mortgage should be no more than 36% of income. Yours is 58%. So not only is the car too expensive, so is the house. And these percentages assume $3,000/month income. If it is actually closer to the $2,200 figure, the picture is even worse. You either need to do something to boost your income or you need to cut back and simplify your lifestyle to reduce expenses and bring them in line with your income.

Originally Posted by dczech09

I will also chime in a second time to tell you that you DO NOT have a zero percent car loan. While the lender is not charging a nominal interest rate, the fact is that a car valued at $21,500 will drop in value rapidly. That car of yours will likely be worth about half in a few short years. That is not zero percent. Essentially, you will go underwater with your car (you will owe more than it is worth at some point).

I understand what you are saying, but that doesn't mean the loan is not 0%. What you say would be true no matter what the interest rate was. Unless you make a substantial down payment when you buy a car, especially if it is a brand new car, you are almost always underwater on the loan immediately from day one. New cars lose 10-15% of their value as soon as you drive them off the lot. Within 2 years, they typically lose 20-25% or even more depending on the make and model. That's part of why buying a new car almost never makes sense financially speaking. Despite all of that, the loan is truly at 0%. Of course, I'm of the belief that 0% financing doesn't really exist because the seller accounts for that when negotiating the price of the vehicle so you likely end up paying more with 0% financing than you would have if the rate was higher.

[bjl584]

Originally Posted by junkmail

Here's my updated scenario after starting the DR debt snowball

Owe:
Mattress- $2,682 at 0% interest. Monthly is $145
CC- $2,569 at 18% Monthly is $75 (roughly)
Auto $21,500 at 0% Montlhy is $420
House $126k at 5.5% Monthly is $1,100 (roughly)

Utilities/Insurance/CellPhone: $509 a month

As of today, I've paid off several CC around $3k

My EF is at $1,000.00

My monthly net income- $2,200 to $3,500 depending on the month

I'm focused on paying off the CC and Mattress.

My question - I have a zero percent auto loan. Should I make the regular payments and focus on savings or debt snowball the car?

I agree with the others. The auto loan is your sticking point. I agree with your line of thinking that selling the car may be your best option. Without a $420 a month car payment, you will have the mattress and the CC completely paid off in a little over the year. That will leave you with only the mortgage. Of course, that assumes that you sell the car and are able to get into something else for cash.

[littleroc02us]

Originally Posted by junkmail

Here's my updated scenario after starting the DR debt snowball

Owe:
Mattress- $2,682 at 0% interest. Monthly is $145
CC- $2,569 at 18% Monthly is $75 (roughly)
Auto $21,500 at 0% Montlhy is $420
House $126k at 5.5% Monthly is $1,100 (roughly)

Utilities/Insurance/CellPhone: $509 a month

As of today, I've paid off several CC around $3k

My EF is at $1,000.00

My monthly net income- $2,200 to $3,500 depending on the month

I'm focused on paying off the CC and Mattress.

My question - I have a zero percent auto loan. Should I make the regular payments and focus on savings or debt snowball the car?

If you are truly following the DR program than you know the answer. Pay off the car, it's close enough to half of your salary where you don't need the expense. How much do you owe on the car?

[fruitbowlk]

debt snowball the car. You want to get out of debt so that you can really go hard on savings.

[Hadwin]

You should sell the car and invest the money .
If you dont have any kind of conveyance problems , you better sell it and invest to secure your future .

[junkmail]

&Littleroc02US
I owe $21,500 on the car at 0% percent interest. I purchased the car last year Feb for $25k. My monthly bill is $400.00
-------------------------------------------
Second Question
When figuring out "Debt To Income" do you use Net Income or Gross Income and why?

[disneysteve]

Originally Posted by junkmail

&Littleroc02US
I owe $21,500 on the car at 0% percent interest. I purchased the car last year Feb for $25k. My monthly bill is $400.00

Too bad you didn't discover Dave Ramsey until after you had bought the car.

How much can you get for it if you sell it privately today?

[junkmail]

Looking online, I could get $22k to $25k at best. The worst case scenario is getting the car at it's loan value so I would have zero loss.

[disneysteve]

Originally Posted by junkmail

Looking online, I could get $22k to $25k at best. The worst case scenario is getting the car at it's loan value so I would have zero loss.

Sell it and be done with it. No matter what, you can't afford a $25,000 car and a $400 payment on your income. Even if you just break even, you'll be in far better shape. Then go out and buy something for a couple thousand dollars. If you can't pay cash, get a small loan, but it is far better to owe $2,000 or $3,000 than to owe over $21,000.

[bjl584]

Originally Posted by junkmail

Looking online, I could get $22k to $25k at best. The worst case scenario is getting the car at it's loan value so I would have zero loss.

Be prepared for lowball offers from people like myself. Don't act or say things that make you seem desperate, as it will only make things worse. Avoid phrases in your add such as "must sell" or anything else that makes it seem like you are in a financial bind. Play it cool, and you are more likely to get top dollar. That being said, prepare to go upside down on the sale of the car. What people post online and what you are actually going to get are two different things. I would start to either secure some cash or start doing research on securing a personal loan to make up the difference. Just in case.

[jpg7n16]

Originally Posted by junkmail

Here's my updated scenario after starting the DR debt snowball

Owe:
Mattress- $2,682 at 0% interest. Monthly is $145
CC- $2,569 at 18% Monthly is $75 (roughly)
Auto $21,500 at 0% Montlhy is $420
House $126k at 5.5% Monthly is $1,100 (roughly)

Utilities/Insurance/CellPhone: $509 a month

As of today, I've paid off several CC around $3k

My EF is at $1,000.00

My monthly net income- $2,200 to $3,500 depending on the month

If your monthly income is 2,200 to 3,500 and you should have a MAX of 28% going to housing, then that is between 616 and 980 given your income range. Average would be $798/month. So let's say $800/month.

And your car should be about a MAX value of around $10k. Giving you the same terms on your current car, you're looking at around $195/month to car payments. So let's say $200/month.

That's where you should be.

So if I compare where you are to where you should be here's what I come up with:
1,100 - 800 = $300/month
420 - 200 = 220/month
$520 extra dollars each month going to too much house and too much car.

How much faster would you be able to get out of debt with an extra $520/month? (aka $6,240/year)

[Bastille]

You'll continue to pay the minimum payment toward every debt while you're concentrating on the debt at the top of your list. Focus on that debt, adding extra to your payments when you're able. As soon as you've paid that debt off,

[Tree0164]

I have never paid more than $15,000 for a car and always have them paid off in 2-3 years if I got a loan. We paid cash for our last car.

Drive Free, Retire Rich - Automobiles - daveramsey.com

I would try to sell the car and then buy something cheaper yes you make need to get a loan only 2-3 year and have a payment of less than $250.

Then focus on the credit and then the mattress.