Negative Equity in Car...Help

Dave01 · #1 (**permalink**) 11-28-2007, 03:13 PM

First off, I wanted to say hello. This is my first posting in this forum. It also seems to be very active. I have accumulated quite a bit of debt from nothing other than frivilous spending and living beyond my means. Several months ago, I realized the severity of my problems and decided I needed to remedy this. I have created some crazy excel sheets that show everything debt related; percentages, monthly and yearly figures, and even a snowball excel sheet (thanks to Dave Ramsey). OK, to the problem.

I have a 2003 Infiniti G35 that I owe $24,000 on. My car payment is $511 a month. The car only gets around 20 MPG if I granny foot the thing. I work 30 miles away from work and the gas mileage is killing me. I have been to several dealerships and they will give me $16,000 on a trade. I have a significant amount of credit card debt that I am putting $1,500 a month toward right now and will have paid off in two years.

I know I need to get rid of the car for two reasons:
1.) I can purchase a cheaper car and use the excess cash and apply that to my credit cards.
2.) I will save a significant amount of money of gas which can also be applied to credit cards.

Having $8,000 in negative equity on a car, I need to do something to pay this down. Would you recommend solely reducing the amount that I am currently putting towards credit cards and apply that to the vehicle and pay it down or pull like $4,000 out of my roth IRA and apply that and a little from my credit card payments to the car. I have been thinking about this, because I would be able to trade the vehicle in faster and then roll all that money into the credit card payments.

I hope this makes sense to everyone. Any advice would be welcomed. Thanks in advance.

sweeps · #2 (**permalink**) 11-28-2007, 03:23 PM

What would you buy if you sold your Infiniti? Can you achieve much better than 20 MPG? Also $16K is what the dealers "say" they will give you on a trade-in, but does that still apply if you buy a $5,000 car? If you sell it outright, you probably will not get $16K (I'm guessing).

It doesn't make sense to pay extra on a 10% (I'm guessing) car loan when you're paying 25% interest on your credit cards. Even though Dave Ramsey's "snowball" method might recommend it.

Dave01 · #3 (**permalink**) 11-28-2007, 03:40 PM

If I sell my car, I will buy something like a used civic or Malibu that gets 30-34 MPG. My wife has a problem with small cars and thinks my car is too small. I think it's too big

I plan on sticking to the 10,000 limit, financing for 2 years. That is why I need to reduce the amount of negative equity to zero. If I sell it outright, I may be able to get closer to 18,000, but I don't know how long I want to hold onto this depreciating asset.

Fortunately, I have two credit cards that I am still paying on. I was able to get 3.99% and 6.9% for the life of the loan on both. Thanks Chase. My interest rate on the car is 11%. So getting rid of it is my number 1 priority.

Regardless, I got myself into this mess and need to dig myself out. Do I love the car, is it really nice...yes. Is it practical...no. I just need a safe reliable cheap car to drive to work and back.

zetta · #4 (**permalink**) 11-28-2007, 03:43 PM

You can probably get more selling the car privately than doing a dealer trade-in. Check New Car Prices | Used Car Values - Official Kelley Blue Book Site and also local for sale ads to get an idea of what you are likely to get.

How many months would it take you to get the $8k together to pay off the difference?

sweeps · #5 (**permalink**) 11-28-2007, 03:48 PM

It's a no-brainer then. Pay as much as you can toward the car... pay the minimum on the CCs until the car loan is paid off. If you can successfully downsize to a more economical car to reduce the size of the car loan, then go for it.

I WOULD NOT withdraw from Roth to pay credit cards @ 3.99% and 6.9%. (In the future please include this information -- it makes a big difference paying 4% vs. paying 25%.)

Dave01 · #6 (**permalink**) 11-28-2007, 04:06 PM

Thank you. I can probably break even in about 6 months. Not to go off on a tangent but I am working on re-creating a side job for the weekends to make some extra money. I used to do custom installations for home theater while in college to make extra money. Needless to say, it is very profitable. I used to make 400-1,000 a day while in school. I still have all the equipment and the area around here has the demand for it. Accountant by week, installer by weekend.

I think by doing this for a while, I could pull in some extra cash to apply to the car and then credit cards.

DebbieL · #7 (**permalink**) 11-28-2007, 04:51 PM

I agree with selling the car privately. You can bet the dealership thinks they can get more than $16K for it if that's what they're offering you. Have it detailed spic n span and dump it. You can get a pretty good used car for around $5K - that's what I would do if I were you rather than finance another vehicle. Good luck!

disneysteve · #8 (**permalink**) 11-28-2007, 05:53 PM

Quote:

Originally Posted by Dave01

I have a 2003 Infiniti G35 that I owe $24,000 on.

I'm really curious how you still owe that much on a 5-year old car. What did you pay and when? And how did you end up with an 11% loan when you've got a CC at 4%, meaning you must have decent credit.

What about doing a balance transfer and paying off the car with a CC? If you can do that with a low interest rate locked for the life of the loan, you could save a bunch. It is risky but might be worth the gamble.

What about refinancing the car as an option?

Have you gone to kbb.com and researched what the car is worth? Plug everything in and see what they think you could get for it in a private sale. If a dealer is paying $16,000, you should be able to get at least a thousand or two more privately I would think.

Hypersion · #9 (**permalink**) 11-29-2007, 01:35 AM

The difference in gas is only 1 to 2 grand a year. I would just keep the nicer/safer car.

Dave01 · #10 (**permalink**) 11-29-2007, 07:36 AM

I have had the car for 2 1/2 years. I had financed the car for 72 months and then refinanced it to 48 months. My credit was not as good then, but it is improving every day.

I have enough available credit to go buy another Infiniti fully loaded on my credit cards at great rates.....BUT.....I have vowed to never use those things again.

Refinancing the car again wouldn't really help the problem. I am sure I could get a lower rate, but I don't think it would be sufficient enough to accomplish my goals.

Thanks for the kelly blue book advice. I am going to do this right now. I have done the same thing on Edmunds, but they seem to be a little off on some things.