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Settling old Debt vs Getting a new one?

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    Settling old Debt vs Getting a new one?

    HI all,

    I'm in a bit of a fix and am not sure what to. My wife recently found out that she still owes $21k in Federal loans. Her father used to handle her finances before and she assumed that her student debt was paid off a while ago.. Its complicated, but without getting into detail, it looks is that we owe $21k (7% APR) in student loans.. Also I have paid a deposit on a new car that'll cost me about $34k after everything.

    I make about $65K a year and my wife hasn't been able to secure a full-time employment for a while. I have about $20k in savings and my monthly expenses (rent,insurance,utility, etc) is about $2000.

    The only logical way I see out of this is to postpone buying the new car until the student loan is settled. But my wife is insisting that I get the car since I've run the old one to the ground.
    But I think paying off $55k would be too much, especially since we are (currently) on a single income.

    Another option would be to going for a cheaper/used car for me.. So that way I can pay off both student loan and car loan..

    What do you guys suggest. Does it make sense to tackle 2 loans at once, especially on a single income?

    Thanks a lot for you help.

    #2
    You are buying way too much car for your income. I agree that you shouldn't buy it.

    Rule of thumb, is to buy a car that has a payment no more than 10% of your monthly take home and a loan of no more than 36 month. That is if you finance. If you can pay cash it is even better.

    You can pick up a quality used car for less than half of what you are planning on spending.
    Brian

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      #3
      I agree with Brian. You can't afford that car even without the student loans in the picture. Go with something much cheaper.
      Steve

      * Despite the high cost of living, it remains very popular.
      * Why should I pay for my daughter's education when she already knows everything?
      * There are no shortcuts to anywhere worth going.

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        #4
        So you have around $1200 a month that's not accounted for?

        I would put off the car for 3 months, save that ($3600) and put that down as half of a car payment ($7k total). You can get a used toyota or honda that'll last at least 2 years if the mileage is under 120k.

        Then focus on paying the loans - $200 to another car fund, $1k to the loans. They will be done right about when you need another car. With a $1k trade-in + $8k in cash, you can get a $18k car and finance half of it. Then pay that down over the next year. In three years, you'll have no loans and a still newer car.

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          #5
          Originally posted by BMEPhDinCO View Post
          So you have around $1200 a month that's not accounted for?

          I would put off the car for 3 months, save that ($3600) and put that down as half of a car payment ($7k total). You can get a used toyota or honda that'll last at least 2 years if the mileage is under 120k.

          Then focus on paying the loans - $200 to another car fund, $1k to the loans. They will be done right about when you need another car. With a $1k trade-in + $8k in cash, you can get a $18k car and finance half of it. Then pay that down over the next year. In three years, you'll have no loans and a still newer car.
          Could be wrong but I read that his $2k expenses don't account for variable expenses like groceries, etc.

          Don't buy the car.

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            #6
            Absolutely don't buy the car.

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              #7
              I agree to not buy the car. What is the point in all that extra stress?

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                #8
                A 7% loan in the current loan environment is very high. Since DW has not been able to secure employment in her chosen field, the reality is she needs to get a job, any job available to start paying off her student loan. There is no reason to set dreams aside, naturally she will continue applying for career jobs. Has dad confirmed the sums owed since $ 21K is a significant sum that will impact financial decisions for a long time.

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