Car Loan

[iflog]

I have a car loan that I am paying 11.25% interest on and owe until 5/13. My monthly payment is $470 and my payoff is about $10,000. I have money in an IRA that I was thinking about pulling and paying off the loan. I was also thinking about securing a new credit card with 0% interest on transfers for 18 months. I am currently unemployed and the monthly payments are killing me. Any suggestions?

[disneysteve]

How much is the car worth? Can you sell it and buy a beater for cash and get out of that loan?

ETA: I would not cash out a retirement account to pay off a car. I would much sooner sell the car. It isn't worth jeopardizing your future just to have a nice set of wheels.

[iflog]

The car isn't worth half of what I owe. You can probably buy a brand new one for a couple thousand dollars more than what I owe on this one. I wouldn't be cashing out my IRA totally. I have more than enough to pay off the car. How about the idea of the credit card?

[disneysteve]

You owe 10K for 2 more years and the car is only worth 5K? Did you roll over an old loan into this loan? Just to be sure, check kbb.com for the current value. If you can get out of this loan, even if it costs you a couple thousand, you'll end up ahead.

What type of IRA do you have? Is it a Roth? If so, you can withdraw money that you contributed without penalty. You just can't withdraw earnings. So if you put in $5,000 last year, you could take out $5,000 this year free and clear.

If you have slashed every aspect of your budget to the bone and have already sold everything you can think of to sell to raise cash, withdrawing from a Roth might be the last ditch option. I'd draw out just enough to get even on the loan when you sell the car and buy a cheap replacement. So let's say the car could sell for $6,000 and you owe $10,000. Withdraw $5,000 - $4,000 to cover the difference on the loan and $1,000 to buy another car.

If it is a traditional IRA, then there are tax issues to deal with and that gets a whole lot more complicated.

As for the credit card, if you are unemployed, you may not be able to qualify for a 0% deal or not for a large enough credit line to make that work for you. Remember, you never want to charge more than 30% of your credit line so to pay off a 10K loan, you'd need a 30K credit limit.

[jpg7n16]

Originally Posted by iflog

I am currently unemployed and the monthly payments are killing me. Any suggestions?

Have you filed for unemployment yet? That would at least help you out a little.


Also, you might wanna go to Used Cars - Used Car Prices, Used Car Values & Reviews - Kelley Blue Book ; look up the Private Party value of your car. I just don't really think your car is worth that little.

For instance I bought an 06 Accord about 2 years ago for $13,000. It's worth around $11k today.

Since your payoff is in 2013, that likely means you had a 5 year loan, meaning you bought a car 2 years ago. And I highly doubt it fell from $11k to $4k over that same timeframe. (if it's not worth 1/2 of what you owe, it's worth less than $5k.)

[kork13]

Originally Posted by iflog

The car isn't worth half of what I owe. You can probably buy a brand new one for a couple thousand dollars more than what I owe on this one. I wouldn't be cashing out my IRA totally. I have more than enough to pay off the car. How about the idea of the credit card?

Putting it onto a 0% credit card is a band-aid. Will you be able to pay it off prior to the 18 months? Right now, you aren't set to pay it off for another 28 months. By the way, the credit card will also charge a transfer fee, normally 2-3%. To pay off the $10,300 in 18 months, you'll have to make ~$570/mo payments. If the payments aren't manageable now, how can you expect a $100/mo increase to help you? If you can't pay it off in 18 months, you'll only find yourself in a world of hurt. You have no idea what the rate will be in 18 months--it could be 15-20% or more, which will only hurt even more.

Sell the car, and pay off the loan. If the car sale doesn't cover the full loan (I think you might be surprised to find that your car's value hasn't dropped by >50% in 2 years), get a smaller, 12-24 month loan to cover the difference (monthly payment between $140-$260/month, and a reduced payback period to boot). Then get a used car that won't bankrupt you (think <$3k). Better to have a $3k loan and a car you can afford right now than a $10k loan and a car that is sucking the life out of you.

Don't even consider cracking open the IRA. In the long run, the above method will help you out WAY more.

[iflog]

Thanks for the replies. I rolled over what I owed on my last car into the payment for this one. I think the loan was for 6 years which I make payments every two weeks to try to get ahead. The blue book on the car is about $6000. My wife has a job from which she could probably get the credit card. Would it be a good idea to secure a card, pay lets say $200 a month on the card for 18 months at no interest, then pay off the car at the end with the IRA?

[disneysteve]

Originally Posted by kork13

If the car sale doesn't cover the full loan, get a smaller, 12-24 month loan to cover the difference

Good advice but an unemployed guy isn't going to qualify for a new loan (or a new credit card for that matter).

[jpg7n16]

Originally Posted by iflog

Would it be a good idea to secure a card, pay lets say $200 a month on the card for 18 months at no interest...

Yes, if they'll let you do that, it'd be a great deal for you.

then pay off the car at the end with the IRA?

No. Why do you want to sabotage your retirement account so badly??

You should have found work way before 18 months, and you should be trying to pay MORE than $470 a month to get rid of the debt as fast as possible.

The object isn't to pay less, it's to pay more.


I mean if you pay them $10k tomorrow, that's a lot more than $470/month. And you would avoid any further interest charges on your debt. The closer you get to paying $10k/month, the less interest you'll be charged over the life of the loan.

[disneysteve]

Originally Posted by iflog

Would it be a good idea to secure a card, pay lets say $200 a month on the card for 18 months at no interest, then pay off the car at the end with the IRA?

Originally Posted by jpg7n16

Yes, if they'll let you do that, it'd be a great deal for you.

You should have found work way before 18 months

Yes, if your wife can qualify for a 0% card with a high enough credit limit to make this work, that would be a reasonable thing to do. I really wonder if that is realistic, though.

However, I still wouldn't be planning to suck money out of the IRA. And why would you possibly be planning to do that in 18 months? You won't still be unemployed then. You may not be unemployed next month. I'm assuming you are out there busting your butt every day looking for any possible work you can find to get back earning an income, even if it is smaller than the one you lost.

[iflog]

I have been looking for work for some time now. I had an interview yesterday. The job only pays about half of what I was making but it has insurance benefits which I need badly. What I'm looking for is a way to reduce some of the payments I have on bills currently. I thought this would be a way to accomplish this. Even if its temporary until I get on my feet again. I'm not looking to deplete my IRA. After paying a portion of the loan off with a card I may still be able to finish it off another way. Paying the whole balance off with my IRA wouldn't put a big dent in it and I would be free of the huge monthly payment plus I would still own the car.

[littleroc02us]

Originally Posted by iflog

I have a car loan that I am paying 11.25% interest on and owe until 5/13. My monthly payment is $470 and my payoff is about $10,000. I have money in an IRA that I was thinking about pulling and paying off the loan. I was also thinking about securing a new credit card with 0% interest on transfers for 18 months. I am currently unemployed and the monthly payments are killing me. Any suggestions?

You don't have a job and you have an ungodly payment on the car. Sell it and take out your roth IRA contribution to help pay the difference... Buy a cheap used car. As for a credit card, think about this way. "I don't have a job, I'm in debt and I want to get a credit card to go further into debt". Does that make any sense to anyone????

[disneysteve]

Originally Posted by littleroc02us

As for a credit card, think about this way. "I don't have a job, I'm in debt and I want to get a credit card to go further into debt". Does that make any sense to anyone????

To be fair, that isn't totally accurate. He isn't looking to take on more debt but rather transfer a high interest, high payment debt to a lower interest, lower payment (and longer term) debt. That would give him some breathing room even though it wouldn't actually solve the problem which is an income issue, not a debt issue.

OP, if your wife has good credit, might it be possible to refinance the auto loan and get a better rate? Even if you have to transfer title to her, if you can drop the rate from 11.25 to 4.5, that would help a lot. Plus, she could do it on a new 5-year term which would drop the payment considerably.

Bottom line, as always, is that you can not borrow your way out of debt. You either need to boost income or cut expenses. The most logical way out of this if you truly can't find any job anywhere is to sell the car.

[bjl584]

What kind of car is it? You may be able to refinance it to a lower rate, although with a current loan of over 11%, can I assume that your credit rating wasn't very good when you bought the car originally? Do you know what your credit rating is currently? Your wife is employed, so maybe she can do the refi deal in her name.

If the above isn't an option, then I agree with some of the others. Sell the car. Get your wife to secure a personal loan for any difference that you may be upside down on, then get yourself a beater for cash and drive it until you get back on your feet.

[littleroc02us]

Originally Posted by disneysteve

To be fair, that isn't totally accurate. He isn't looking to take on more debt but rather transfer a high interest, high payment debt to a lower interest, lower payment (and longer term) debt. That would give him some breathing room even though it wouldn't actually solve the problem which is an income issue, not a debt issue.

I understand what your saying, but he claims that it is only 0% interest for 18 months. My guess is that he won't have it paid off in 18 months, I could be wrong so in the end I wonder what the interest rate bumps up to? 20%?? Doesn't fix the issue.

[disneysteve]

Originally Posted by littleroc02us

Doesn't fix the issue.

For sure.

[jpg7n16]

Originally Posted by littleroc02us

I understand what your saying, but he claims that it is only 0% interest for 18 months. My guess is that he won't have it paid off in 18 months, I could be wrong so in the end I wonder what the interest rate bumps up to? 20%?? Doesn't fix the issue.

It does make it better though.

If OP's payment was $470 at 11.25%, it would take 24 months to pay off $10,059.07. 24 * 470 = $11,280 paid to remove 10,059 of debt = $1,220.93 interest

If OP transfers to 0% card, and only pays $200/month for 18 months (which would be dumb, as OP should try to pay much more than that), then card reverts to 20% interest, and they go back to paying $470/month again. - Buys them 18 months of lower payments.

There would be 18 payments of $200 (total 3,600) which lowers the balance owed to 6,459.07. Then at $470 again, it would take 15.7 more payments to remove the balance. 15.7372292 * 470 = 7,396.50

Total paid = 3600 + 7,396.50 = 10,996.50 to remove 10,059.07 = $937.43 interst.


And OP would still come out ahead by about $300.

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But if OP pays $200 for 6 months, then gets a job (which is a really long time to be unemployed), and doubles the payment to $400/month - and just keeps at $400 until card is paid off.

Long story short, OP would pay only $424.59 of interest - and would come out ahead nearly $800.

[iflog]

I'm looking to lower my monthly bills. Paying $200 a month for 18 months saves me $270 a month. After 18 months I hope I have a job and can pay off the remainder of the debt. I know I could refinance for another 5 years at a lower interest rate to lower my payment but who wants to pay for a car for 10 years? I don't want to sell the car because it is in good shape, hasn't cost me anything as far as repairs and I don't think it will anytime soon, plus I will need a good car to get to work when I find it. I have had $1000 beaters in the past and end up spending countless dollars every month to keep them running.

My original post was to lower or eliminate the monthly payment. I have cut my cable bill by $70 a month by eliminating channels I never watched and didn't know I was paying for and by removing long distance on my phone which I never use. I am checking into auto insurance companies to see if I can lower that payment now. Anywhere I can reduce my monthly payment is a help.

Again thanks for all the replies.

[Tree0164]

How about sharing your budget we maybe able to help places that you can cut.

[littleroc02us]

Originally Posted by jpg7n16

It does make it better though.



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But if OP pays $200 for 6 months, then gets a job (which is a really long time to be unemployed), and doubles the payment to $400/month - and just keeps at $400 until card is paid off.

Long story short, OP would pay only $424.59 of interest - and would come out ahead nearly $800.

Mathematically it may, but not necessarily, what I guess I'm saying is that by all this moving around it doesn't fix the real issue which is the psychology of it all. The problem resides in the fact that he bought a car he couldn't afford and doesn't have a job.