What to do with my car?

[Vpxggmr17]

Quick question...

I currently drive a 2011 Nissan Maxima that I owe about $33,000 ($670 payment). With low miles and packages/features, it's trade in value is appox. $23-25k meaning I'm somwhere between $8-10k upside down (from rolling over previous vehicles; stupid, and will not be doing that in the ways I was again).

My question is, what makes the most sense. Should I just pay it off in the next 55 or so payments and keep it. I only drive about 700 miles a month max so the longevity of the car should be long.

Should I pay it off at the end of next year with savings, but leaving myself with about $6000 cash left over, basically hitting a reset button on my savings?

Should I pay it a little while longer and then flip it into a lease (is that even possible or make sense with the negative equity) to lower my payment for the next few years and then at the end of the term (24 or 39 months) purchase a used vehicle with cash?

Is there another option I'm missing? I would prefer not selling it privately at a loss and paying the difference, leaving myself with no vehicle as I rely on it heavily to get to both my jobs.

[bjl584]

What is your income and other debts? What percentage of your income does your car payment represent?

[Vpxggmr17]

My take home income is about $5000/mo and the car payment is $670/mo. I have no credit card debt and $13,000 in student loans. I also have $5000 in investments/retirement (just started this year) and I have $12,000 in my checking account.

[bjl584]

My take home income is about $5000/mo and the car payment is $670/mo. I have no credit card debt and $13,000 in student loans. I also have $5000 in investments/retirement (just started this year) and I have $12,000 in my checking account.

You may want to just keep the car. Would it be possible to double up on the payments and get it paid off in the next 2 years?

The only way to sell it or trade it in would be to either drain your savings or roll over the $8 to $10K deficit. Both are not good options.

Since it is a new car, I'd be inclined to keep it. Pay it off as quickly as possible, and then just keep it for 10 to 15 years.

[Vpxggmr17]

That was my thinking.

I guess what I was struggling with was that I'm going to in a few months pay off the student loans, basically resetting my checking account to bare minimum.

Then, I could pay the car off by this time next year doing the same thing. While it feels great to be out of all payments of everything come 12/31/13, it does feel slightly demoralizing saving up $20-30k each year only to mostly deplete it with a quick swift check.

[bjl584]

That was my thinking.

I guess what I was struggling with was that I'm going to in a few months pay off the student loans, basically resetting my checking account to bare minimum.

Then, I could pay the car off by this time next year doing the same thing. While it feels great to be out of all payments of everything come 12/31/13, it does feel slightly demoralizing saving up $20-30k each year only to mostly deplete it with a quick swift check.

Why pay off the student loans completely? Your payment will be low. So will your interest rate. And you will be able to write off part of the interest payments on your taxes. It would make far more sense to just make the payment on them and focus your attention on the car.

[Like2Plan]

What is the interest rate you are paying on the car loan? Is it higher or lower than your student loans?
You recognize that with having the negative equity that if your car was stolen or totaled the insurance company would only pay what the value of the car (and you would pay the remaining loan balance out of pocket)? So, you shouldn't do anything that will lengthen the term (like the lease thing) and increase your exposure to this risk.

Don't you have another thread about the fiscal cliff and your current job being vulnerable should nothing get resolved in congress? And, how often has there been a show down in congress with a deadline that keeps gets pushed to the right? I think a 6 month emergency fund should take precedence over paying off the car loan. I think everyone should have an emergency fund--(though sometimes there are good reasons for addressing debt while temporarily delaying the full funding of the emergency fund.)

After you have the emergency fund in place, could you work to pay down the car loan so you were no longer upsidedown? Then, you would have a choice. You could continue to work to pay off the car loan and keep the car (a Nissan is a good brand with very good reliability). Or, you could save up a little more, sell the Nissan and buy a used car for cash.

[jpg7n16]

I guess what I was struggling with was that I'm going to in a few months pay off the student loans, basically resetting my checking account to bare minimum.

I agree w/ Brian here. If you have the money available, paying extra on the car loan is probably a much better option for you.

Then, I could pay the car off by this time next year doing the same thing.

Why are you building up cash on the side, then wiping it out to pay off debt? Why not keep a certain level of cash, and pay anything above that to the debt straight away? It would pay down the debt faster, and save you more interest than you're making on cash.

While it feels great to be out of all payments of everything come 12/31/13, it does feel slightly demoralizing saving up $20-30k each year only to mostly deplete it with a quick swift check.

Yet another reason why you should establish a level of cash on hand, and make larger monthly payments with the excess cash.

What if you always had $10k cash on hand? If you have $12k or $15k at the end of a month, pay $2k or $5k, respectively, towards the higher interest rate loan. Hold onto the remaining $10k in your bank account.

Then you won't see all your money whoosh away, you'll save extra interest, you'll pay off your debts early, and you won't be left out to dry if you run into an emergency.

I think that's some pretty good value there.

[Vpxggmr17]

What is the interest rate you are paying on the car loan? Is it higher or lower than your student loans?
You recognize that with having the negative equity that if your car was stolen or totaled the insurance company would only pay what the value of the car (and you would pay the remaining loan balance out of pocket)? So, you shouldn't do anything that will lengthen the term (like the lease thing) and increase your exposure to this risk.

My interest rate on the car is 4.59%, my $11k student loan is 7.9%. So yea on that one. I got gap insurance when I purchased the vehicle so my risk is null and I paid no extra expense for that safety net (I'm really good at negotiating lol). Only reason I even considered a lease was to shorten my term to 24/36 months from the 50 or so I have now and cut the payment by some over those 2-3 years and then be free and clear after the fact to buy something used with cash.

Don't you have another thread about the fiscal cliff and your current job being vulnerable should nothing get resolved in congress? And, how often has there been a show down in congress with a deadline that keeps gets pushed to the right? I think a 6 month emergency fund should take precedence over paying off the car loan. I think everyone should have an emergency fund--(though sometimes there are good reasons for addressing debt while temporarily delaying the full funding of the emergency fund.)

Yes the fiscal cliff post is mine as well. I completely agree with the 6 month EF and I think that will absolutely be the direction I take. I personally feel like the fiscal cliff is something they will push off and delay. What sparked that concern though was my boss freaking me out over it a little bit.

After you have the emergency fund in place, could you work to pay down the car loan so you were no longer upsidedown? Then, you would have a choice. You could continue to work to pay off the car loan and keep the car (a Nissan is a good brand with very good reliability). Or, you could save up a little more, sell the Nissan and buy a used car for cash

I think what I had been leaning towards most was paying down the car, once the student loans were removed, and keeping it long term because as you state, Nissan's are reliable, I take care of my car and I don't put a lot of miles or heavy driving on it.

Lastly, to quote "jpg7n16":
"What if you always had $10k cash on hand? If you have $12k or $15k at the end of a month, pay $2k or $5k, respectively, towards the higher interest rate loan. Hold onto the remaining $10k in your bank account."

I LOVE this idea and honestly is one avenue I didn't think at all about. I guess my struggle was deciding when was an appropriate level to leave but I think $10,000 is completely safe and reasonable and would give me the flexibility, starting even at the end of this month, to really begin hammering away, in large chunks, portions of my debt.

There's also one more factor fueling my motivation to remove this student loan debt and that is that the large loan is a Parent Plus loan, meaning it is only my Dad's credit report as well and I, for both of our sakes, would like it off of there as soon as possible, especially since he is going to be trying to re-fi on his house soon and wants as much cleared debt as possible. Considering the debt is mine, I obviously want to get that off of his name rapidly.

[maat55]

You can either be 8-10k in debt or 33k in debt. I would sell the car, borrow the difference(if possible) and pay cash for a 2-3k car from savings. Or, I might go ahead and payoff the loan and borrow for a 3k car. With 650 going towards smaller payment and replenishing savings.

You need to realize that the 8-10k is gone. Remaining in a bad car situation for the term is a worse case scenario in my books.

[Vpxggmr17]

You can either be 8-10k in debt or 33k in debt. I would sell the car, borrow the difference(if possible) and pay cash for a 2-3k car from savings. Or, I might go ahead and payoff the loan and borrow for a 3k car. With 650 going towards smaller payment and replenishing savings.

You need to realize that the 8-10k is gone. Remaining in a bad car situation for the term is a worse case scenario in my books.

The only problem I have with this is I'm now paying $8-10k for air and $3k for a clunker. I have the ability to pay this off either in its full form of payments, or in cash by the end of next year.

I personally would rather have a 2011 vehicle with 30,000 miles and still under warranty that will run for 100,000 miles (6-7 years) before needing a major replacement versus a 2001 vehicle with 100,000+ miles that has been used an abused by someone other than myself.

I understand your point of staying in for the term and honestly, that is probably my last option at this point. But going from a 100% reliable vehicle to a clunker is not an option for the amount of driving I have to do.

[bjl584]

The only problem I have with this is I'm now paying $8-10k for air and $3k for a clunker. I have the ability to pay this off either in its full form of payments, or in cash by the end of next year.

I personally would rather have a 2011 vehicle with 30,000 miles and still under warranty that will run for 100,000 miles (6-7 years) before needing a major replacement versus a 2001 vehicle with 100,000+ miles that has been used an abused by someone other than myself.

I understand your point of staying in for the term and honestly, that is probably my last option at this point. But going from a 100% reliable vehicle to a clunker is not an option for the amount of driving I have to do.

There are plenty of used cars that are reliable. A cheaper car doesn't necessarily equal clunker, and had you come here asking advice on buying a car I would definitely advise you to look into used vehicles. But, being that you already bought a new car, my advice remains the same. I'd work on aggressively paying it off and then keeping it for the long term.

[Vpxggmr17]

There are plenty of used cars that are reliable. A cheaper car doesn't necessarily equal clunker, and had you come here asking advice on buying a car I would definitely advise you to look into used vehicles. But, being that you already bought a new car, my advice remains the same. I'd work on aggressively paying it off and then keeping it for the long term.

I agree and the next car I purchase will absolutely be used (just not in the low range of $3k or so). I am a car person, I don't "settle" as I spend so much time in my vehicle and that I see it as a form of entertainment as much as a item for transportation. So while others may love their season tickets or other extra expenses, mine is with a vehicle that meets my needs/desires. Can I find that in a used vehicle? Absolutely! I am just not currently in the position to seek that out.

That said, see if someone here can help me with this math.

Hypothetically speaking, take away all of my checking, savings, investments, etc at 1/1/2013.

At my current earning rates of about $5,000/mo and my current expensese (once my loans are done with) of MAX $2,400/mo. My 2013 savings will be $31,200.

Now I estimate that I will still owe $25,000 on my car by the end of 2013.

That means, I can cut a check and have $6,200 left over and increase my monthly savings to about $3,300/mo. Or I can keep making the payments and save everything at the same $2,600/mo rate.

It looks like this:

Pay-off in full
12/31/2013 = $6,200
12/31/2014 = $45,800
12/31/2015 = $85,400
12/31/2016 = $125,000

Pay-off monthly
12/31/2013 = $31,200
12/31/2014 = $62,400
12/31/2015 = $93,600
12/31/2016 = $124,800

Understanable that these are estimates and that emergencies, etc come up that would/could disrupt savings. But roughly, that is the exact same amount regardless of if I pay the car EOY next year with cash, or finish out the payment schedule.

[maat55]

[QUOTE]

The only problem I have with this is I'm now paying $8-10k for air and $3k for a clunker. I have the ability to pay this off either in its full form of payments, or in cash by the end of next year.

Again, the 8-10k is air no matter how you pay it. Paying off by next year is a viable option if you are secure in your income.

I personally would rather have a 2011 vehicle with 30,000 miles and still under warranty that will run for 100,000 miles (6-7 years) before needing a major replacement versus a 2001 vehicle with 100,000+ miles that has been used an abused by someone other than myself.

I drive a 2002 with 138k. It drives great and I plan to drive it for many more years. What I do not have is a payment. While being self-employed, my income is not stable. I have managed to continue my car fund and have it as a second EF.

I understand your point of staying in for the term and honestly, that is probably my last option at this point. But going from a 100% reliable vehicle to a clunker is not an option for the amount of driving I have to do.

It is your risk to manage. If you have a secure job, you have flexibility, when it is not, it is better to position yourself safely. Putting 33k into a car over the next year or two is a high risk venture considering your income may be suspect.

I do not know you, but my gut tells me you are wanting more car than is safe for your situation. I'm sure your plan would be just fine during good times, but these are not good times, imo.

No matter what you choose to do, I wish you well.

[Vpxggmr17]

[QUOTE=maat55;340203]

Putting 33k into a car over the next year or two is a high risk venture considering your income may be suspect.

I do not know you, but my gut tells me you are wanting more car than is safe for your situation. I'm sure your plan would be just fine during good times, but these are not good times, imo.

I agree it's high risk which is why I'm leaning more towards keeping my payment and bulking up my emergency fund, rather than depleting it to the max to cut a check for the car.

Unfortunately, my car situation is a long story of bad history in the sense that I have bought a lot of cars and rolled negative equity in. In 2006 I bought a brand new GT mustang at 18 years old. Loved it and drove it for 3 years. I did A LOT of driving and when gas prices shot up to $4.25+/gal it ended up being cheaper for me to buy a clunker and garage the mustang, then it was to continue driving the mustang. Then I had a freak accident with the Mustang, right as it came out of warranty and I wanted out. This is when the process got messy.

At this time, I was a college student, making a decent income of around $35,000, living at home and not thinking about money in the same means that I do today. In those days, it was "well now I'm earning more, that means I can afford more". Really dumb way to think but I didn't have anyone else countering that attitude. I traded in both cars and bought a used G Coupe for $30,000. At the time I still had $6k negative equity, mainly from the second car. A year later, I bought a brand new truck for $32,000, and again, rolled the same negative $6k equity into the truck. Then comes the next part of the story.

This is now 2010, I have the truck and ended moving from AZ to Washington D.C. where for one, a truck does not fit at all and two, my daily commute was 90 miles each way. I was filling up daily at the tune of $30-40 per gas station visit, 5 times a week. It was brutal. I decided to trade it in for something with better fuel economy.

My current vehicle had a sticker price of $38,000. Rediculous for a 23 year old, yes and honestly, looking back I wish I could have slapped myself then as well. The postive note is that while that was sticker, I actually negotiated the price on the car down to $28,000. That said, my truck, from prior negative equity, and the fact that I barely had it over a year, was now $10,000 negative. So essentially I was able to get my current car at sticker price. Considering the complete negative equity picture, I was fairly pleased at that. I had kept my payment the same, kept the length of my payments the same as what was owed on the truck and lowered my gas and insurance bills by half.

I wake up everyday wanting to kick myself for not saving from the age of 16 but I never had anyone enlighten me to do so. Extremely frustrating looking back. But at the start of 2012, when I looked at my overall financial picture and I saw that I had a $40k car loan, $16k in student loans, $6k in credit card loans, $500 in my checking account and a 3 week period until I would get my first check from my new job, I freaked. Since about mid-Jan this year, that picture now looks like $33k car loan, $12k student loan, $0 in credit cards and $12k in my checking account and $5k in investments/retirement accounts. By no means out of the woods but a VAST improvement. So would I admit I have more car than I should have? Absolutely. But since I do have it, paying it and keeping it for 10+ years seems to make the most sense at this point as opposed to keeping with the trend of buying/trading/buying/trading or selling out at a loss and buying less of a vehicle. When I reach a point that what I owe equals the value of the car, that may change and I may sell to break even and then purcahse a vehicle for half of what was owed, in cash, and make things better.