[jeepnstein]

Originally Posted by thesteve

Hmm...a lot to think about.

I don't know how much more than the loan we could get for the vehicle. I was thinking loan +$2-3K, but now that I look at craigslist, I'm not as certain.

My wife's big concern is moving from a vehicle that is reliable to a vehicle of unknown reliability. Because we're in the middle of a school semester, having the vehicle she would be driving break down would be a massive inconvenience. Given the traffic flow in San Diego, being in a single vehicle situation would have me dropping my wife and kid off at school an hour before my daughter's day care opens up in order to make it to work on time.

That all being said, this is a lot to think about and it might be something we could feasibly attempt come the summer when my wife and daughter won't need to go anywhere during the day.

Reliability in a vehicle is kind of a moving target. As a former mechanic and son of a mechanic I have kind of a jaded view of owning a nice car. I can make about any hunk of junk work. The key is knowing what to ignore and what needs urgent attention. Many people would die of embarrassment riding in my current luxury mobile. A 2000 Isuzu Trooper with 135000 miles and a dent or two isn't exactly what we call top of the line these days. I smile every time I turn the key and it starts.

As long as you have one reliable vehicle you can roll the dice on the second car. We've had the mommy van in the shop for a week getting the door fixed and haven't missed it a bit. Would we want to do it all the time? Nope, but both our cars are paid for. And I actually enjoy riding to work with my wife in the morning so it's rather pleasant to spend some time together. I never intend to pay more than five thousand for a car until the day I retire. We look at my car as a second vehicle and not something really that worthy of spending much money to own or maintain. I'll take junky and paid for any day.

Not having two cars isn't a "massive inconvenience". Not having money to pay your creditors because your hours just got cut is a "massive inconvenience." It'll make you lose sleep at night and allow temptation to sneak into your life. It'll cause your health to suffer. It'll make your family relationships suffer. It'll limit what opportunities you can offer your children. It limits your freedom to serve our God and his Kingdom because you cannot serve two masters. Debt is a massive inconvenience.

I'm in the fist month now of being free from all but the mortgage. I can't believe how it feels knowing all my bills are paid and I still have money in the bank. In a few months I'll be in a position where my savings will beg the question "what to do with this money?". It's totally foreign to me. While my friends all shop for SUV's, boats, campers, and big screens I dream of the day I have a mortgage burning on my front walk.

I'm so conditioned to being broke and beholden to the credit card companies that I really don't know what to think now. Prisoners call it being "institutionalized." I have nobody to blame but myself for what I did. And I think it's important for me to share my story with others so they might not step into the trap.

[thesteve]

I get, to an extent, what you're saying. I'm just saying that given the choice if paying $253/month that we can afford vs. dropping my wife off at school early and picking her up anywhere from 2-3 hours after school is the options we'd be looking at in case of a "junker" that went into the shop. Maybe it's not "massive inconvenience" to you, but it's definitely not a scenario that we can look at lightly.

I'm not talking about luxury vehicles by any means. I'm talking about a simple sedan (06 Corolla) that my wife has had since before we were married and looking at what options we have and whether or not we can find a daily driver that can replace it. Our other vehicle (my daily) is a 14 year old Civic, so no ones really talking about anything crazy here.

[Epaphras]

If you have $1,000 set-aside for emergencies as Dave recommends, then you can afford a rental car at $30 a day for a few days in the case of your "Getting out of debt car" going into the shop.

You basically have to decide if the 100% certain inconvenience of a car loan outweighs the unknown inconvenience of possible car trouble. If getting out of debt is the goal, then downsizing the car eliminates a ton of your debt immediately. It has to become a gut thing, that's why they call it gazelle intensity.

[jeepnstein]

Originally Posted by thesteve

I get, to an extent, what you're saying. I'm just saying that given the choice if paying $253/month that we can afford vs. dropping my wife off at school early and picking her up anywhere from 2-3 hours after school is the options we'd be looking at in case of a "junker" that went into the shop. Maybe it's not "massive inconvenience" to you, but it's definitely not a scenario that we can look at lightly.

I'm not talking about luxury vehicles by any means. I'm talking about a simple sedan (06 Corolla) that my wife has had since before we were married and looking at what options we have and whether or not we can find a daily driver that can replace it. Our other vehicle (my daily) is a 14 year old Civic, so no ones really talking about anything crazy here.

An 06 Corolla? You'd be nuts to get rid of it. They are the living personification of a frugal automobile. And fine ones at that. And a Civic is your second car? You already have the car thing worked out. You made it sound to me like you have some really extravagant ride.

Go after the other debts and just keep paying for the Toyota. It's as sound a car as you'll ever find. Lots of cars are shot by the time their paid for. Like your Honda before it, the Toyota will just be hitting it's prime by then. Think about the years you'll get out of it after it's paid for. The total cost of ownership of that car isn't going to be that much of a big deal at all.

[ICallHimTurtle]

I agree with the corolla statement. They last a ridiculous amount of time. This car will be reliable long past any other car you're looking at.

We have the same situation with the car as you two do, almost exactly. And though we follow the Ramsey scenario as well, paying off the smallest debt first to taste that initial feeling of freedom, the fact that reliable > cost in our situation and we loathe paying $275/month for it moved that debt to the top of our list. When it's done in about a year, we will have paid it off in half the time.

I think there's wisdom in Ramseys plan to snowball your debt, even if (depending on personal interest rates) you might pay more in the long run. I'm an extreme planner so I mapped it all out in Excel, and I can be debt-free in three total years having paid $600 more, or in eight years having saved that $600. Hubs and I decided peace of mind was worth it in the end, especially considering life sneaks up on you and having a nest egg can be much more important to some.

[BillSPrestonEsq]

Originally Posted by thesteve

I get, to an extent, what you're saying. I'm just saying that given the choice if paying $253/month that we can afford vs. dropping my wife off at school early and picking her up anywhere from 2-3 hours after school is the options we'd be looking at in case of a "junker" that went into the shop. Maybe it's not "massive inconvenience" to you, but it's definitely not a scenario that we can look at lightly.

I'm not talking about luxury vehicles by any means. I'm talking about a simple sedan (06 Corolla) that my wife has had since before we were married and looking at what options we have and whether or not we can find a daily driver that can replace it. Our other vehicle (my daily) is a 14 year old Civic, so no ones really talking about anything crazy here.

Honestly, I would pay down the car you have now.

Clunkers tend to be a money pit. I have owned a couple, and my family drove them for years prior to my moving out on my own.

$253 a month would not really be enough to budget for the disasters a clunker can cost you. 1000 won't really cover much on an older car. I just had to replace my radiator and water pump which failed in my (fully paid for) car. It was a thousand and some change. Those are nowhere near the most expensive parts of a car to fail.

In addition, I would count the intangible risks of an accident in San Diego traffic owing to mechanical failure.

Having lived in San Diego, and been hit by a car commuting to work without a second car, on a bicycle, yeah, it is a colossal, massive inconvenience.

[Dark Helmet]

this is going to sound absolute, and that's because some study of the issue scripturally and 10 years as a financial planner have led me to this knowledge. (sounds a lot like Ramsey)

0) NEVER CASH OUT RETIREMENT PLANS: in most places they are protected assets that will survive bankruptcy, monetarily it is foolish when you consider how much those dollars tend to cost in tax/penalty and in lost future benefit.

1) Until you have an adequate cash reserve, ONLY PAY THE MIMIMUMS.

2) Once you have an adequate reserve and everything is current, focus on paying off the SMALLEST BALANCE FIRST, but NEVER EVER violate the reserve to pay down debt. STILL only pay MINIMUMS outside of the targeted debt.

3) rinse, repeat. If you have similar-sized balances, THEN look to the interest rates to make the decision.

4) when you are debt free, commit the balance of your debt reduction payments to SAVINGS and INVESTING for the future, don't commit more than 20-30% to lifestyle expansion.

if my mind, that is the ONLY way. I sound like a ________, I know, but I do this for a living, please trust me on this.

[to_be_released]

Originally Posted by Dark Helmet

3) rinse, repeat. If you have similar-sized balances, THEN look to the interest rates to make the decision.

Surely this has it's limits. If I had a 100K loan at 10% and a 5K loan at 5%, I'd definitely work at reducing the 100K loan first.

In real life terms, I currently have an interest free student loan. If I and my wife to be were to buy a house, I'd definitely prioritise paying off the mortgage and just put the minimum into paying off my student loan.

[thesteve]

A bit late to the game here. Retirement has filed for refund processing. Tax return is significant enough that, when combined with the retirement cash out, should eliminate at least 80% of the CC, if not all of it.

I understand the "don't touch retirement" argument and appreciate your input, but right now I definitely think that eliminating debt in order to build I savings is worth the loss of free money 20 years down the road.

[Dark Helmet]

that's a bummer, I'm sorry I was late to the party.

[Dark Helmet]

Originally Posted by to_be_released

Surely this has it's limits. If I had a 100K loan at 10% and a 5K loan at 5%, I'd definitely work at reducing the 100K loan first.

In real life terms, I currently have an interest free student loan. If I and my wife to be were to buy a house, I'd definitely prioritise paying off the mortgage and just put the minimum into paying off my student loan.

zero-interest notes are an interesting animal for sure, but on your first example you'd be wrong. while it might make mathematical SENSE, in the practical it doesn't work as well.


SMALLEST BALANCES FIRST. it frees up the cash from the minimum you'd have been paying on the smaller note sooner so you can use it to knock down the larger one later AND it provides more free cash to cope with emergencies and the unseen.

10 years ago I thought like you did... it was just as wrong then as it is now.

[to_be_released]

Originally Posted by Dark Helmet

zero-interest notes are an interesting animal for sure, but on your first example you'd be wrong. while it might make mathematical SENSE, in the practical it doesn't work as well.


SMALLEST BALANCES FIRST. it frees up the cash from the minimum you'd have been paying on the smaller note sooner so you can use it to knock down the larger one later AND it provides more free cash to cope with emergencies and the unseen.

10 years ago I thought like you did... it was just as wrong then as it is now.

I guess it comes down to what your targets are then. If the target is to minimise the minimum payment of each week, then yes, eliminating the smaller debt first is the smarter plan. This would be appropriate in a situation like that of thesteve, where an additional one off source of money has appeared and is able to be used to knock off some capital from a loan.

However, if it were a situation of how you were dividing your regular loan repayment money, assuming you're paying more than the bare minimum on a regular basis, I'd target the higher interest rate.

Fortunately, I don't anticipate this being an issue for me though. My fiancée and I are both very intent to live within our means, and don't intend to take on any loans other than (interest free) student loans and eventually a mortgage. We have credit cards, but don't use them to spend money we don't have.

[thesteve]

Somewhat off topic, but where do you get interest-free student loans?

[Thrash]

Originally Posted by thesteve

Somewhat off topic, but where do you get interest-free student loans?

Do you mean completely interest free, or only interest free in regards to the student's current enrollment?

[Dark Helmet]

Originally Posted by to_be_released

I guess it comes down to what your targets are then. If the target is to minimise the minimum payment of each week, then yes, eliminating the smaller debt first is the smarter plan. This would be appropriate in a situation like that of thesteve, where an additional one off source of money has appeared and is able to be used to knock off some capital from a loan.

However, if it were a situation of how you were dividing your regular loan repayment money, assuming you're paying more than the bare minimum on a regular basis, I'd target the higher interest rate.

Fortunately, I don't anticipate this being an issue for me though. My fiancée and I are both very intent to live within our means, and don't intend to take on any loans other than (interest free) student loans and eventually a mortgage. We have credit cards, but don't use them to spend money we don't have.

You'd still be wrong.

you NEVER divide up the extra payment on more than one loan. every money/debt management system/program/etc agrees on this.

pay the minimums on EVERYTHING and then pay down the smallest first. Behavioral Economics won a Nobel Prize for a reason... this method stems from those developments.

it's not about what makes sense, it's about what WORKS.