Should I sell my 1 year old vehicle? HELP

[mlm808it]

Hi all. I'm new here and don't know if this is the right place to post. Anyway I'm 25 years old and have lived my life pretty foolishly up until this point. I'm planning on turning it all around aggressively and as soon as possible. Here's information on the car. Financed $46,000 at 8% interest. Current balance on the loan after 1 year is $38,500. Monthly payments are $804. Household income after taxes is $4800 per month. KBB says my vehicle is worth $38,500 as well so I've just broke even apparently. Also, I'm currently in the military so my rent and utilities are completely paid for if that needs to be taken into consideration. Our goal as a family is to change our lives and try to live on half of any work related income for the rest of our lives until retirement paying off debt first, then investing. Unsure if it is achievable but it is just a goal for now. Sorry for the long post but I guess my question is: Should I sell the vehicle and buy a much cheaper used vehicle ~15,000, take that saved money and use it to pay off CC debt, or suck it up and try to cut back and save what little we can to pay off this car and our CC debt. I know it sounds like a no brainer to me to sell, but my wife says I'll definitely take a loss and lose the $9000 I've already put into the vehicle. Who is right?

[sv2007]

I'm planning on turning it all around aggressively and as soon as possible.

What's aggressively?

Turning a life around (or even just quit smoking, such a seemingly minor thing compared to turning around a whole life) isn't a snap of the finger thing.

My advice is to set specific, realistic gaols to have real results. This usually means a slow change once the goals get set and you start to accomplish them.

[sv2007]

Current balance on the loan after 1 year is $38,500. Monthly payments are $804. Household income after taxes is $4800 per month. KBB says my vehicle is worth $38,500 as well so I've just broke even apparently.

Actually, you are not even (or above, or below) until you've sold the car. That's the funny thing about money. Don't fall into the trap of counting your chickens before they hatch.

[mlm808it]

What's aggressively?

Right now we usually have $500/mo leftover after bills/food/entertainment etc. But that's just with not really caring about living frugally. I'd like to increase that to at least $2000/mo. Just wondering if my vehicle (my biggest bill) is the best place to tackle first, meaning cutting losses and selling it.

[ctjohnson]

You should definitely sell the car! $804 dollar car payment and you are not upside down yet......sell it tomorrow.

If you saved that $804 dollars a month you would have 10's of thousands of dollars in the bank by the time the loan would be over.

You also have credit card debt so you don't need a $15k car either. You could buy a very nice honda civic or similar for 4 of your current payment ($3200) and own it. Then save that $800 a month and buy a nicer car in a year for cash.

The money you have spent on the car is gone. It will continue to go down in value every year. When the loan is paid off it will be worth how much? (10k maybe)

Plug in 804 dollars a month into any investment calculator and see how much you would have in 20 years if you invested that much instead.

[Nutria]

Hi all. I'm new here and don't know if this is the right place to post.

I'd have put it in the Debt form, but Personal Finance is close enough...

Anyway I'm 25 years old and have lived my life pretty foolishly up until this point. I'm planning on turning it all around aggressively and as soon as possible.

You recognized the problem earlier than I did.

Here's information on the car. Financed $46,000 at 8% interest.

Holy moly!

Current balance on the loan after 1 year is $38,500. Monthly payments are $804. Household income after taxes is $4800 per month. KBB says my vehicle is worth $38,500 as well so I've just broke even apparently. Also, I'm currently in the military so my rent and utilities are completely paid for if that needs to be taken into consideration. Our goal as a family is to change our lives and try to live on half of any work related income for the rest of our lives until retirement paying off debt first, then investing.

Or saving to buy that $46K car with a $30K down payment.

Unsure if it is achievable but it is just a goal for now.

That's a bit ambitious, especially if/when you have children.

Sorry for the long post but I guess my question is: Should I sell the vehicle and buy a much cheaper used vehicle ~15,000, take that saved money and use it to pay off CC debt, or suck it up and try to cut back and save what little we can to pay off this car and our CC debt.

How much debt? $5K, or $35K?

Anyway, a $46K car is for someone in much better financial shape than you. (Or us, for that matter, and we only have a fraction of the CC and auto debt that you have...)

I know it sounds like a no brainer to me to sell, but my wife says I'll definitely take a loss and lose the $9000 I've already put into the vehicle. Who is right?

Lose $9K now, or lose many more thousands of dollars from financial difficulties for years and years to come. Like amputating a gangrenous limb to save the save the rest of the body.

[mlm808it]

How much debt? $5K, or $35K?

Anyway, a $46K car is for someone in much better financial shape than you. (Or us, for that matter, and we only have a fraction of the CC and auto debt that you have...)



Lose $9K now, or lose many more thousands of dollars from financial difficulties for years and years to come. Like amputating a gangrenous limb to save the save the rest of the body.

$10K in CC debt. I'm glad someone shares my view, I'd like to just cut my losses and move forward ASAP. Wife on the other hand...

[Nutria]

$10K in CC debt. I'm glad someone shares my view, I'd like to just cut my losses and move forward ASAP. Wife on the other hand...

Develop a spreadsheet showing how long it will take to pay off that $10K with the expensive car and without the expensive car. The black and white numbers might take some of the emotion out of the conversation.

Even better would be how much you'd have in 5 years when saving that $804/month. ($60,000 presuming that you take the $35K proceeds and use $15K on a car, $10K on the CC debt and $10K to start your Emergency Fund).

If it was your idea to buy the car, then fall on your sword and promise never to do it again. If it was her idea... well, I have no solution to that problem...

[bjl584]

Sell the car. Buy something affordable (something that you can finance for 36 months with a monthly payment of no more than 10% of your monthly take home pay), then start tackling the credit cards.

[disneysteve]

Sell the car. Buy something affordable (something that you can finance for 36 months with a monthly payment of no more than 10% of your monthly take home pay), then start tackling the credit cards.

Normally I would agree with this plan but not in this case.

Sell the car.
Buy a replacement with CASH. No car loan. You can get a perfectly good car for $5,000. My daughter just bought a 2010 Hyundai Accent a few weeks ago for 5K.

The big question is if you will actually break even on the car. Just because KBB says it's worth 38K doesn't mean you'll find a buyer to pay that. Have you researched what comparable cars are selling for? Do you have savings to cover any shortfall between the sale price and the loan balance? For example, if the car only sells for $34,000, do you have the $4,500 to make up the difference?

[feh]

You should definitely sell the car! $804 dollar car payment and you are not upside down yet......sell it tomorrow.

+1000

Ideally, you wouldn't have made such a foolish purchase in the first place. Realizing your mistake is a big step in the right direction...

[bjl584]

Normally I would agree with this plan but not in this case.

Sell the car.
Buy a replacement with CASH. No car loan. You can get a perfectly good car for $5,000. My daughter just bought a 2010 Hyundai Accent a few weeks ago for 5K.

The big question is if you will actually break even on the car. Just because KBB says it's worth 38K doesn't mean you'll find a buyer to pay that. Have you researched what comparable cars are selling for? Do you have savings to cover any shortfall between the sale price and the loan balance? For example, if the car only sells for $34,000, do you have the $4,500 to make up the difference?

I was operating under the assumption that OP has no cash and will be forced to finance a cheaper car once the current car has been sold. I doubt he will break even on the sale. He may have to get a loan to make up the difference.

[disneysteve]

I was operating under the assumption that OP has no cash and will be forced to finance a cheaper car once the current car has been sold. I doubt he will break even on the sale. He may have to get a loan to make up the difference.

Probably true, which is why I asked if he'll be able to cover the shortfall.

If you do need to finance a replacement, I still wouldn't use the 10%/3 years rule as I don't think you should be spending that much. I'd still go for the 5K car so that you only need to borrow the 5K plus the shortfall to pay off the old loan. Hopefully, that gets your total car debt down from $38,500 to about $10,000.

[Nutria]

Even better would be how much you'd have in 5 years when saving that $804/month. ($60,000 presuming that you take the $35K proceeds and use $15K on a car, $10K on the CC debt and $10K to start your Emergency Fund).

It just occurred to me that this is wrong, since obviously the proceeds of the sale must go to pay the outstanding $38K auto loan balance.

[Fishindude77]

You are 25, so just chalk this up as a mistake, put it behind you and start making better decisions.

Sell the car as quickly as you can, and with any luck you can get out of the loan at ZERO balance remaining. This now frees up that monthly payment amount, plus likely a hefty insurance premium.

Now go find yourself a $2-3000 car that will serve as basic transportation and pay cash if possible. If you need to borrow, keep the length of loan to one year. Yes it may have some problems you may need to spend $$ on, but I doubt it will cost you $800 per month, plus you shouldn't need full coverage insurance on the cheapo vehicle which will save additional $$.

Now start saving money with what you have eliminated in payments and insurance, and maybe a year or two down the road you step up to a $6-7,000 car that you pay cash for. While you may not be driving a cool new vehicle like some of your friends and acquaintances, you will be driving a "paid for" vehicle which is something they can't say.