Debt Payoff, Need Advice!

**jpg7n16** · 03-01-2011, 07:35 AM

Originally posted by KaleighMaeA View Post

I guess my struggle is to me car loans are something most people have, and once you pay off a car loan it might only be another year before you get another car loan

Why would you need another car loan in a year? How often are you trading cars??

Couldn't you save up some cash over the next 4-5 years and buy a car if you wanted one? You don't have to take a loan to buy a car. I bought mine with cash. No loan, no interest, no payments, no nothing.

If you paid off the cars and saved up those payments for 4 years in a bond fund earning 4%, you'd have $30,864 - add that to whatever proceeds you can get from the sale of your car, and you shouldn't need a loan at all. If you do, you're buying too much car.

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My advice for your bonus would be to knock out the highest interest rate loans first. If the SLs are higher than you car, just pay them off. If the cars are higher than the SLs, pay them off. And I wouldn't worry about the credit score. Lowering your debt will help you out either way.

You seem to have an odd mindset about debt. As though it's something you're supposed to have. That's just not true

It's something you will occassionally have, and should try to limit.

Everyone wants to get out of debt, but I don't see as many people who want to avoid it in the first place.

**KiwiJo09** · 03-01-2011, 07:35 AM

What are the interest rates? In general, the rule of thumb is to pay off the highest interest rates. According to some other people, you just pay the balances low-to-high. I'm currently doing the low-to-high balances because it was easier for me. But, if your interest rates are particularly high, I'd suggest paying off the highest rate first.

**KaleighMaeA** · 03-01-2011, 07:45 AM

The true problem is this, when I married my husband he was very financially irresponsible. Now both of our paychecks go into one account that he does not have a debit card for. His name is on the account, and he really has improved TREMENDOUSLY over the past year, but I am scared to pay his car off. His car has the highest interest rate of all the loans, and the highest monthly payment. However, as much improvement as he's made over the past year I still see his weakness as cars. He is completely obsessed, and I still don't believe that if I pay this one off he won't run and buy another one. I really would not care if he did IF he let me put that $310 a month that we are paying on the car now into an account then if he could just sit tight for two years he could buy an $8,000 dollar car in cash. I just feel like it's a gamble.

The student loans on the other hand, he already has a great job, has graduate college, and has no interest in going back so this is something I feel better about spending my military bonus money on because I know it's something that will be gone forever.

I'm guessing this thinking is a little twisted?

**jpg7n16** · 03-01-2011, 07:55 AM

Yup. The loan is not the car, and the car is not the loan. They are different things. You don't have to have one to get the other.

So even if he decides to run out and get a new car - he'd have to sell his current one, which you could use those proceeds to pay down the loan.

It almost seems like you think that once the loan is paid off, that the car is worthless. As if the loan didn't exist, he wouldn't want the car anymore and it would be worth $0 and you'd have to start all over - that's just not true.

Or as though - if you pay off an $8k car, he's gonna try to buy a $35k Mercedes. That's quite a leap!

He's an intelligent guy (made it into grad school) so I doubt he'd try to keep upgrading cars solely because you paid off a loan...

I'd def work on setting up a plan with him - together deciding what is best for your family. Don't try to do it on your own. Don't tell him your plan (or mine) and tell him 'this is just how it will be.' But sit down and discuss a plan to get out of debt. What do we need to do to get rid of this debt from our lives? What do we need to do to prepare for our financial future? What makes the most sense? I wouldn't want to wake up at 50 and realize I hadn't saved a dime yet. The sooner you start, the easier it will be.

If you're both integral parts of the pay-off plan, maybe you'll both see the path to getting out of debt is by holding these cars a little bit longer. Getting the most value out of them that you can.

**jpg7n16** · 03-01-2011, 08:01 AM

And if he'd be much more comfortable paying down the student loans, then start there*. I'd rather see you guys work a plan you can both stick to, than just working the highest interest rate 1st plan because it saves the most money.

*Unless the car is at like 16% or something. Then that stuff has got to go! It's over twice as expensive as the student loans.

**KaleighMaeA** · 03-01-2011, 08:19 AM

The car is at a 12.8% interest rate. We owe $10,500 but it's only work about $5,400.

Basically what happened is before we were married I had a car I had payed cash for. The only "debt" was my house (I really don't consider it true debt though since I have over $40,000 dollars in equity in it). I started having some problems with my car so I decided to trade it in. The car I traded it in for is the one I owe $8,000 on. I knew my bonus was coming in July so I was OK with the decision to finance it because that bonus was going to pay off the car.

Then my husband (we were not married at this time) bought his car at a buy here pay here place because his credit was so terrible (it went from a 457 then to a 610 now with a lot of work on my part with the finances). He paid more than double what the car was worth. It's a dodge durango with 120,000 miles on it. In addition, obviously it's a gas guzzler and he drives 96 miles a day to work. To reduce our gas bill I bought him a $500 dollar car. It's actually really nice for the price, it wasn't running at the time and had a tow notice on it so the owner was desperate to get rid of it. It blue books at $3,500. All I had to do was change out the fuel pump and we have had no problems since.

I do agree with the advice everyone posted about talking with my husband, and he really has been wonderful working with me and letting me get our finances to the point they are now. I just know how my husband is with cars and if he sees that he could sell this car and make money on it and buy something else I really think he will. I am scared to spend a large chunk of change I have worked hard for on eliminating one debt just to end up with him getting another car. As it stands right now he's stuck with the car because we owe more than it's worth.

If I can get him to agree to sticking with the two vehicles he has for the next 2-3 years I would be comfortable paying off the durango. Then he could easily buy a nice car with cash, and it won't take me 2-3 more years to pay off the student loans too. Maybe I should go with this plan?

**KaleighMaeA** · 03-01-2011, 08:22 AM

Follow up question:

Does your credit score improve by the amount of money you pay off, or by the number of loans you pay off?

This makes a big difference since I could either pay off one car totally and one partially meaning I'm only truly eliminating 1 loan, or four separate student loans?

This does come into play for me in a big way since we would like to buy a different house in about a year.

**jpg7n16** · 03-01-2011, 08:52 AM

Originally posted by KaleighMaeA View Post

The car is at a 12.8% interest rate. We owe $10,500 but it's only work about $5,400.

Geez - that's $112/month going to interest alone. ($1344/year) It's almost twice as expensive as your student loans. I want to say bite the bullet and pay it off.

If I can get him to agree to sticking with the two vehicles he has for the next 2-3 years I would be comfortable paying off the durango. Then he could easily buy a nice car with cash, and it won't take me 2-3 more years to pay off the student loans too. Maybe I should go with this plan?

That sounds like a great question to ask him. What does he think about that plan? Any concerns he has that you didn't think of?

I would love to just say 'sure do A, B, and C' but I think it's better for your family (and also for your long term finances) that you two make that decision for yourselves.

I have no problems with the plan you came up with. But I'm just a guy on the internet.

Originally posted by KaleighMaeA View Post

Follow up question:

Does your credit score improve by the amount of money you pay off, or by the number of loans you pay off?

This makes a big difference since I could either pay off one car totally and one partially meaning I'm only truly eliminating 1 loan, or four separate student loans?

This does come into play for me in a big way since we would like to buy a different house in about a year.

Your credit score is kind of a complex thing. Based on several variables. Paying down/off debt may or may not even move your score at all. (in the short term, long term it will absolutely move your score)

Have you ever tried CreditKarma.com ? It's a free site and has a 'score impact calculator' so that you can run through some scenarios and see how it impacts your score. And paying off your debts is never a bad thing for your score.

But the score is overrated - it's better for you to get out of a 12.8% debt rather than the 6.8% loans, regardless of how it affects your score - because it gives you $600/year more money in your bank account.

**AshleyB** · 03-01-2011, 09:57 AM

You know your situation better than anyone else. If you don't feel comfortable paying off your husband's car right now... then don't. Your husband sounds like my ex as far as spending and car buying... so I understand where you are coming from on this.

It's your bonus and if you want to use it to pay off his school loans then that's what you should do. It does make more financial sense to pay off the car first but it also needs to make emotional sense... if you feel deep down that paying off his car will set you guys up for more debt, or more fights, then it's not worth the extra you could save on interest.

**khosta** · 03-01-2011, 10:12 AM

It seems like you guys really have it together! That's awesome! If I were in your shoes I would pay off that student loan asap!!! Get rid of that unwanted debt!! You dont want to keep paying it for 15 years.... pay it off and then you'll have that extra money for the next 15 years, plus! I'de rathe rpay car payments... that seems more normal than a loan for 15 years!!

**KaleighMaeA** · 03-01-2011, 10:57 AM

Credit Karma was a great website, thank you for that advice!

**KaleighMaeA** · 03-01-2011, 01:26 PM

Also, thank you all for the advice. I talked with my husband over our lunch breaks and I think the high interest car is the way to go.

**littleroc02us** · 03-02-2011, 09:04 AM

Originally posted by KaleighMaeA View Post

I guess my struggle is to me car loans are something most people have, and once you pay off a car loan it might only be another year before you get another car loan, where the student loans is something I can pay off and we will never have again.

Kaleigh

This paragraph bothers me the most. I'm not sure where in our culture we learned that having a car payment is normal, I think it's abnormal. Cars are for transportation and shouldn't cost much, much less be financed. Whatever happened to saving? I would suggest you conquer your debts in the following order:

1. Car loan $8000
2. Car loan $10,500
3. Student loans $15,600

Depending on your ability to pay on these, how long will this take you?

**KaleighMaeA** · 03-02-2011, 09:42 AM

I was going to go for the $10,500 car loan first, that will be gone in July then go for the other car loan which I can get rid of by January at the latest.

Debt Payoff, Need Advice!