Should I pay off my car loans?

**lorraineb** · 10-27-2013, 05:34 PM

The first question is, why do you have 4 cars?

**Wino** · 10-27-2013, 05:35 PM

Originally posted by tomhole View Post

I have access to $100k+ cash advance if I needed it for some reason.

Please clarify how this is not a loan, and therefore only transferring your debt from one pocket to another.

**corn18** · 10-27-2013, 05:41 PM

Originally posted by lorraineb View Post

The first question is, why do you have 4 cars?

1 for me, 1 for wife, 1 for each daughter.

**corn18** · 10-27-2013, 05:45 PM

Originally posted by Wino View Post

Please clarify how this is not a loan, and therefore only transferring your debt from one pocket to another.

Huh? I guess you thought I was implying that I could pay off the cars with the available credit? Not sure why I put that detail in there. Didn't plan to pay off the cars with other credit (at much higher interest rates).

**disneysteve** · 10-27-2013, 06:02 PM

Originally posted by tomhole View Post

1 for me, 1 for wife, 1 for each daughter.

You have almost $100,000 in debt for cars but have no non-retirement savings. What's wrong with this picture?

You say 2 of the cars belong to your daughters. Are they paying the loans?

How much is each car worth? Could any of them be sold to at least break even and then replace them with something more affordable?

What is your monthly take home pay? You're spending almost $1,800/month on car payments which shouldn't exceed 10% of your income. Are you bringing home $18,000/month?

**corn18** · 10-27-2013, 06:18 PM

Originally posted by disneysteve View Post

You have almost $100,000 in debt for cars but have no non-retirement savings. What's wrong with this picture?

Not sure what the question is. I have been paying of CC debt for the last 3 years and finally got it to $0.

Originally posted by disneysteve View Post

You say 2 of the cars belong to your daughters. Are they paying the loans?

No.

Originally posted by disneysteve View Post

How much is each car worth? Could any of them be sold to at least break even and then replace them with something more affordable?

All negative equity for a total of -$18,000. Won't sell them. I will have enough from the bonuses to pay them all off. Question is should I pay them all off or put it in an emergency fund.

Originally posted by disneysteve View Post

What is your monthly take home pay? You're spending almost $1,800/month on car payments which shouldn't exceed 10% of your income. Are you bringing home $18,000/month?

Monthly take home is $15,500. Bonuses are $100,000 (take home).

Tom

**Wino** · 10-27-2013, 08:43 PM

Pay off the cars with the bonus. Until you have the bonus in-hand (or paid-on-the-cars), increase the payment amount you currently pay on car two. If you pay off car 2 before the bonus, continue to pay off the cars in the order of 1, 3, 4.

You have enough income that you should not have unnecessary debt. You can afford the car payments, but you've got about $100K (probably more initial cost) that's rusting away in your driveway. Sure, they still look nice, but assuming $100K initial sales price, you're losing $5K per year for the use of the cars beyond maintenance, gas, insurance, etc.

I'm surprised you didn't negotiate a company car along with your salary and bonus.

**corn18** · 10-28-2013, 02:04 AM

Originally posted by Wino View Post

Pay off the cars with the bonus. Until you have the bonus in-hand (or paid-on-the-cars), increase the payment amount you currently pay on car two. If you pay off car 2 before the bonus, continue to pay off the cars in the order of 1, 3, 4.

You have enough income that you should not have unnecessary debt. You can afford the car payments, but you've got about $100K (probably more initial cost) that's rusting away in your driveway. Sure, they still look nice, but assuming $100K initial sales price, you're losing $5K per year for the use of the cars beyond maintenance, gas, insurance, etc.

I'm surprised you didn't negotiate a company car along with your salary and bonus.

Thanks, WIno. I like that plan. We keep cars for a long while but I also keep car loans for a long while. Been trying to change my spots and pay them off early vs. later. Car 1 and 4 are both 2011 (wife and daughter) and car 3 is a 2014 (other daughter). Car #2 is my truck and is a 2008 and still running great. And it still has a balance of $12k+ after almost 6 years. That's the mentality I am coming FROM. I have been working a 5 year plan to get debt free except for mortgage. A nice promotion at work has accelerated that by 2 years. I started with $138k of CC debt. That's how stupid I was.

No company cars in my company. Would be nice.

Again, appreciate the guidance.

Tom

**bjl584** · 10-28-2013, 03:47 AM

The simple answer to your original question is to pay off the loans.

The more involved answer is to sell some of the cars for something that is more affordable and start saving an Emergency Fund.

**Wino** · 10-28-2013, 04:48 AM

bjl,

I agree with your second suggestion in general,.

Tomhole makes the equivalent of over $20K per month. He can afford those cars if he wants them, and he already stated he won't sell them. From that, it is apparent he does not want further advice. Were he open to other suggestions, then his mortgage and other debt would also need to be examined.

The good thing about having a high income is that you're allowed to make mistakes without dire consequences. I see it sorta like the South Park episode where they downloaded music, causing catastrophe for the rock stars http://www.southparkstudios.com/clip...not-a-big-deal

If he wants to use 4 or 5 months of salary on cars, is that any different than someone who makes $50K buying a $20K car? No. Is it wise? Also no. But he'll still have enough income to overshadow any difficulties and much more so than the $50K earner with 40% of his income tied up in depreciating assets. Personally, I'd not buy so many new cars.

Now, if Tomhole also has a $2M house mortgage and a $400K HELOC or home improvement loan, then he's in trouble even at his income level. He didn't mention any of that, so I just answered his question with the information he provided. Of course, in another thread, he mentioned $6K per month on credit cards, so that raises a red flag, but he didn't mention that here, and apparently wanted only the short answer to his direct question.

If things go south on him, he always has three unnecessary cars he can sell, after all.

**corn18** · 10-28-2013, 05:03 AM

Originally posted by Wino View Post

bjl,

I agree with your second suggestion in general,.

Tomhole makes the equivalent of over $20K per month. He can afford those cars if he wants them, and he already stated he won't sell them. From that, it is apparent he does not want further advice. Were he open to other suggestions, then his mortgage and other debt would also need to be examined.

The good thing about having a high income is that you're allowed to make mistakes without dire consequences. I see it sorta like the South Park episode where they downloaded music, causing catastrophe for the rock stars

If he wants to use 4 or 5 months of salary on cars, is that any different than someone who makes $50K buying a $20K car? No. Is it wise? Also no. But he'll still have enough income to overshadow any difficulties and much more so than the $50K earner with 40% of his income tied up in depreciating assets. Personally, I'd not buy so many new cars.

Now, if Tomhole also has a $2M house mortgage and a $400K HELOC or home improvement loan, then he's in trouble even at his income level. He didn't mention any of that, so I just answered his question with the information he provided. Of course, in another thread, he mentioned $6K per month on credit cards, so that raises a red flag, but he didn't mention that here, and apparently wanted only the short answer to his direct question.

If things go south on him, he always has three unnecessary cars he can sell, after all.

Mortgage is $2,395 / month. No other loans.

$6k / month on credit card is paid off each month. I get $60 / month in rewards for that use.

Anything else you'd like to know? Sure is an arrogant crowd on this forum.

Tom

**disneysteve** · 10-28-2013, 05:27 AM

Originally posted by tomhole View Post

Sure is an arrogant crowd on this forum.

Tom, I understand how some responses (including mine at times) may come off as arrogant but please understand that the regulars here have learned that the question being asked is often the wrong question. There is often a back story that is far more important than the issue being raised.

The other problem is that questions are often asked in a vacuum. "Should I pay off my car loan?" may seem like a simple question but answering it properly really requires knowing a whole lot more about your situation. How much do you earn? What other debt do you have? How much are your monthly expenses? What percentage of income is going to savings? Do you have an adequate emergency fund? Are you saving for kids' college? What other financial goals are you trying to achieve? How old are you? Etc.

It sounds like you built up a bit of a mess with cars and credit cards and are now working to clean it all up. Good for you for that. Paying off $138,000 in CC debt is huge!

What to do from here? I'd say to use the bonus to establish an emergency fund. We can go back and forth on the amount but I'd suggest one month worth of expenses to start. Use the rest to pay off all but the 0% car loan. From that point on, use excess income each month to build the EF to 3-6 months of expenses and also boost your savings rate. It is great that you're maxing your 401k but $17,500/year isn't nearly enough savings given your income level. Your goal should be at least 15% of gross annual income going to retirement. Depending on your age, it may need to be higher than that. And no, the 15% does not include the employer match.

**autoxer** · 10-28-2013, 05:29 AM

Originally posted by tomhole View Post

That's the mentality I am coming FROM. I have been working a 5 year plan to get debt free except for mortgage.

Your change of mindset is awesome, keep it up.

**Wino** · 10-28-2013, 05:41 AM

Originally posted by tomhole View Post

Mortgage is $2,395 / month. No other loans.

$6k / month on credit card is paid off each month. I get $60 / month in rewards for that use.

Anything else you'd like to know? Sure is an arrogant crowd on this forum.

Tom

My comment about your finances was meant in your defense. I didn't expect you to have $2.4M in household debt, and it appears I was right. You make enough money that you can keep the cars - which I said. The general feeling on this board tends to "do the most economical thing with your money, no matter how much or how little you have or make."

The above having been said, your $6K per month in credit card payments is still a red flag, as I stated. Unless you commute from Chicago to Houston once per week, that's an excessive amount of spending, even at your pay level. If you do commute like that, then you needed to negotiate that as part of your package, which would not count as credit card spending for this forum's purposes.

You recently got a large pay raise. I will hereby warn you that your ability to earn will never exceed your ability to spend. I give you most of the NFL and NBA as my examples. Your pay level is high, but it is by no means unique. There are at least a handful of regular posters here who have incomes at your level. Those who do still don't have 4 cars with an average age of 2 years, and I think all of them would advise others not to purchase such things.

You asked for guidance, and guidance was given. When others tried to delve deeper, you shut them down. That's why I merely answered your question. Afterwards, I started to write a post that was nearly as direct as this one, but decided against it. I will give you the gist of that post here: You're looking at a slippery slope. You need to figure out where you want to be, and then set up a plan on how to get there. At your pay level, you must have some departmental or division responsibility. I suggest you approach your household in a similar manner as you would approach your area of responsibility. What would you do if you asked a department manager about next year's budget and he said, "I don't have a plan. I'm just going to wing it?"

Let me give you some questions along the lines you should be asking yourselves (your spouse should be included in this):

Where do we want to be financially in five years?
When should we target paying off the house?
What do we want to do when we retire?
When do we want to retire?
How much money will we need to retire at that age to do those things?
Will we have a hedge against inflation such as was seen in the 1970's?
Are there any large purchases we want to make?
How will we accomplish all of those things above?

I'm NOT asking you to post any of those answers here, but you really need to look at them now before your $6K credit card spending becomes $9K credit card spending, followed by the new ATVs and the RV and their payments. You just worked your way out of $130K of credit card debt. That means you spent that much more than you had once. There's nothing but yourself stopping you from doing it again, and a whole bunch of people in Manhattan, Detroit, Los Angeles, and Washington coming up with ways to help you do it again.

I'll get off my soapbox now. Please realize that I'm not trying to be critical or arrogant. I write (and speak and think) in a direct fashion, and my terseness and to-the-point style tends to set people on edge. I apologize (once again) for having come across in such a fashion.

Should I pay off my car loans?