Author Topic: Aspiring Mustachian bound to a monster car loan :(  (Read 3998 times)

skybound5

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Aspiring Mustachian bound to a monster car loan :(
« on: June 23, 2012, 01:31:43 PM »
As I said, I'm an aspiring mustachian trying to find happiness by eliminating debt and a frivolous lifestyle. My number one barrier to financial success is a Toyota Tacoma I bought brand new in 2010 (I know, TERRIBLE idea, but I was young and didn't know any better....)

To make matters worse, I was upside-down in my trade-in (I was living a very antimustachian lifestyle) so my total purchase price was astronomical. Brace for it! $39,000 on a ~$30,000 truck at an original interest rate of 7%!!!

Anyways... I've paid it down diligently, even refinanced at one point to take advantage of falling interest rates; but nothing can shake the sick feeling I have now as a (slightly) wiser person paying over $500/month for a vehicle. As many of you likely know, the frills of a 'new car' are gone shortly after it's purchased; just like the resale value. My loan balance is now approximately $29,000 at a very modest interest rate on a 4 year term (starting just earlier this year) yielding a monthly payment of about $580 (shitty, I know..)

The question: I am considering selling my truck private party for (hopefully) close to the KBB PP value of ~$26,000. I would make up the difference in my loan with money I have in savings. Then I would purchase a sub-$10K vehicle that would accommodate my day-to-day travels. Unfortunately, I cannot afford to buy a car outright, so the replacement vehicle would be finance at the best rate possible (740 credit). But the benefit I seek is a ~$200/mo payment versus almost $600/mo. That would free up quite a bit of money for savings and paying off higher interest debt.


Thoughts??

Devils Advocate

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #1 on: June 23, 2012, 03:22:55 PM »
Yes.
Sounds like a good plan. Hope you can sell it for that amount. Good luck

DA

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #2 on: June 23, 2012, 05:13:41 PM »
You mentioned higher interest rate debt.  Do you have credit card balances?  Student loans at higher rates?

What I would do in your situation would depend on my income and my debt.  If I had enough income to cover all my expenses plus a little extra, I might throw part of the savings I was planning to use on buying down the car loan at the higher rate debt, along with the extra income.  Once I had paid most or all of that off I would focus on paying the truck down to the point where I could sell it without dipping into my savings.  I would also accumulate the necessary down payment for a cheap car.  At that point I would sell the truck and buy the cheap car.  I would then focus on paying that off ASAP.

Once I was in control of my situation, I would start down the savings and investment path.


velocistar237

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #3 on: June 23, 2012, 06:27:31 PM »
It sounds like a great plan to me. It's often difficult to bite the bullet on an underwater asset, but you'll come out far ahead in the long run.

skybound5

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #4 on: June 23, 2012, 06:59:22 PM »
You mentioned higher interest rate debt.  Do you have credit card balances?  Student loans at higher rates?

What I would do in your situation would depend on my income and my debt.  If I had enough income to cover all my expenses plus a little extra, I might throw part of the savings I was planning to use on buying down the car loan at the higher rate debt, along with the extra income.  Once I had paid most or all of that off I would focus on paying the truck down to the point where I could sell it without dipping into my savings.  I would also accumulate the necessary down payment for a cheap car.  At that point I would sell the truck and buy the cheap car.  I would then focus on paying that off ASAP.

Once I was in control of my situation, I would start down the savings and investment path.

Excellent advice. So in my particular situation, yes I do have one credit card with a higher interest rate than my auto loan.... But the balance is nothing that I'll be able to fully get rid of anytime soon.... I think that's why I was targeting the vehicle, which can be sold, so that I would free up the additional monthly income to throw at the credit card debt.

Does that change your recommendation at all? Or is it the same?

Another Reader

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #5 on: June 23, 2012, 08:22:12 PM »
I would have to see all the income and expenses plus the assets and liabilities to decide how I would attack the problem.  Are you comfortable sharing that information here?  You will get lots of suggestions and several plans of attack from the forum participants if you do that.

I am a believer in having an emergency fund, so I would fund that first.  Then I would develop a payoff strategy for the entire pile of debt that best utilized my resources, once I had everything laid out in front of me.  Generally, I would try to pay off all the small, nuisance amounts first and then concentrate on the bigger amounts.  Selling stuff, including the car at some point, would be part of my plan.  Cutting the housing expense would also be on the table, if it made sense.  I would have to know how secure my job/income was to allocate a reasonable amount of income and savings to debt.  Again, the strategy has to fit the specifics of the situation.

velocistar237

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #6 on: June 24, 2012, 05:00:13 AM »
Does that change your recommendation at all? Or is it the same?

If you wanted to be thorough, you could compare different options in a spreadsheet to see which way you would come out ahead.

James

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Re: Aspiring Mustachian bound to a monster car loan :(
« Reply #7 on: June 24, 2012, 12:58:45 PM »
Sell asap and get a cheap vehicle.  In my mind the only question is how cheap of a vehicle to get.  If you finances are sufficient to get a nice vehicle then great, but if you are financing the new vehicle and have other debts as well, then you should probably limit yourself to a vehicle cost of just few thousand.  Once you have paid off your debt you can save for a new vehicle, and driving the beater will serve as a nice reminder of your goal.