Author Topic: Finally Digging Out  (Read 1689 times)

T-Money

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Finally Digging Out
« on: January 09, 2020, 02:50:04 PM »
Hello Everyone, long time reader here but new to the forum and am looking for some advise on what to do about my upside truck loan and finances.

The stats:
Income- 100,000/year (Salary) or $5300/Month take home
Truck Loan- 45,629 left paying 796/month
Truck insurance - 175/Month
Personal Loan - 6494 left paying 382/month

The personal loan is where i really messed up, i took it out a couple years ago from Easyfinancial when things were rough for me and i am paying something like 49% interest and they wont lower it even though I've tried to get them too.

So what i'm thinking of doing is selling the truck and using the money to A) pay off the remainder of the personal loan B) buy an older cheaper vehicle and C) put the rest towards the vehicle loan. The problem is i owe $45,629 on the truck and would be lucky to get $30,000 for it but realistically somewhere between 25 & 28 for it. So i am wondering if it is worth doing because i need a truck for work (I get paid for it $100/day as part of my salary and the company pays for all of my fuel even when i'm not working so no issues there) So i will be looking for another truck for sure but even an older truck suitable for the work is around $12,000 then the $6400 for the loan which leaves with me $9,000ish to put towards the original loan which would be be at still owing $36,000 for a much older vehicle.   

It would get me out of that personal loan which is great because the interest rates are ridiculous and I've gotten to the point where i'm sick of it. But i don't know if its worth having that large of a loan still for an older less reliable truck or if i should just keep the new truck and keep throwing extra payments at it when i can, tax return season is also coming up quick and i would be able to put that towards the personal loan as well which should pay off a large chunk of it.

Any insight you guys have would be appreciated, I've only recently really started looking at where my money really goes and this site/community has been a big help.
Thanks   

mozar

  • Magnum Stache
  • ******
  • Posts: 3451
Re: Finally Digging Out
« Reply #1 on: January 09, 2020, 03:06:13 PM »
If I were you I would hustle and pay off the truck and personal loan off within a year. You make enough to do that.

T-Money

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Finally Digging Out
« Reply #2 on: January 09, 2020, 03:08:50 PM »
Not really, I didnt put my expenses on the list including rent, utilities, child support but after everything i usually have like $300/month maybe left over. I do extra work when i can and anytime i have a month where i save more i put it towards the loan for sure.

Lady SA

  • Bristles
  • ***
  • Posts: 493
  • Age: 29
  • Location: Midwest
Re: Finally Digging Out
« Reply #3 on: January 09, 2020, 03:17:08 PM »
I suggest you do a full case study in the case study section of the forum, you'll get more detailed and productive answers there! There is also a great spreadsheet (look at the post stickied at the top of the case study sub forum) that you should fill out and post in your case study, it is very illuminating.

Considering your additional information about your expenses, it sounds like you're basically living paycheck to paycheck. Reducing your monthly expenses would be my #1 priority, so everything should be questioned. Your phone service, truck, food bill, perhaps moving to a cheaper place, etc.

Regarding the truck, without more detailed information/context, my gut is saying sell the truck, do your plan to pay off your personal debt and buy a replacement truck, and then with your $1k per month (or more, after cutting a bunch of other extraneous expenses!) now left over, pay off the underwater loan for 3 years and consider it a painful lesson.

Another way to think about it: don't get trapped in the sunk cost fallacy. Would you *buy* that truck today? No? Then sell it. How much you owe is not super relevant. I think MMM had an early post on this a few years ago.
edit: https://www.mrmoneymustache.com/2015/07/02/if-you-wouldnt-buy-it-you-should-probably-sell-it/

« Last Edit: January 09, 2020, 03:20:46 PM by Lady SA »

T-Money

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Finally Digging Out
« Reply #4 on: January 09, 2020, 03:29:58 PM »
I havent seen the Case study sub but i will look for it now! Thank you

Gronnie

  • Bristles
  • ***
  • Posts: 370
  • Age: 35
  • Location: MN
Re: Finally Digging Out
« Reply #5 on: January 09, 2020, 04:46:51 PM »
Unless I'm missing something you can't sell the truck and put the money towards something else. The loan is secured by the vehicle, you can't even sell the vehicle at all unless you can cover the deficiency, and you certainly can't sell it and put the proceeds towards something else and just keep paying the vehicle loan.

chemistk

  • Pencil Stache
  • ****
  • Posts: 843
  • Location: Mid-Atlantic
Re: Finally Digging Out
« Reply #6 on: January 10, 2020, 05:52:32 AM »
I havent seen the Case study sub but i will look for it now! Thank you

I second the Case Study suggestion.

Way more often than not, there are plenty of other areas one can reduce their spending. I've identified some of my own that I was more or less blind these last few years. At this point, you're suggesting a fairly simplistic "either/or" without any additional (and incredibly helpful) information. As uncomfortable as it may be, the more information you share, the more others can help.

AMandM

  • Handlebar Stache
  • *****
  • Posts: 1235
Re: Finally Digging Out
« Reply #7 on: January 10, 2020, 06:33:46 AM »
Unless I'm missing something you can't sell the truck and put the money towards something else. The loan is secured by the vehicle, you can't even sell the vehicle at all unless you can cover the deficiency, and you certainly can't sell it and put the proceeds towards something else and just keep paying the vehicle loan.

Agree with this.

If the interest on your personal loan is really 49% I would make paying that off my highest priority--i.e. paying extra and making sure the extra is all directed at the principal.

FatFI2025

  • Bristles
  • ***
  • Posts: 354
  • Location: California
Re: Finally Digging Out
« Reply #8 on: January 10, 2020, 07:22:30 AM »
Not really, I didnt put my expenses on the list including rent, utilities, child support but after everything i usually have like $300/month maybe left over. I do extra work when i can and anytime i have a month where i save more i put it towards the loan for sure.

If you want to dig out within a few years you're going to have to change this situation to either make more money or save more to allocate more to your debt. You should think about refinancing your personal loan if you can lower the rate, and maybe even taking out more to get rid of the truck, but your cash flow is your bigger mid-term challenge.

wellactually

  • Stubble
  • **
  • Posts: 140
Re: Finally Digging Out
« Reply #9 on: January 10, 2020, 07:36:01 AM »
I mean, it is possible to get a personal loan to cover the upside down difference in some situations. But I'm not really sure you would qualify, considering you're already over 50% debt-to-income and mentioned a child support payment as well and it would all be unsecured.

If you're saying you only have $300 extra a month and you've got $6500 at loan-shark interest, then you are in a serious, hair-on-fire emergency. That's why people are recommending a full case study where you list all your income, assets, debt and obligations, and expenses.

This is actually a situation where Dave Ramsey can be tapped into: https://www.daveramsey.com/blog/how-to-sell-an-upside-down-car

In his parlance, you shouldn't even be seeing the inside of a restaurant until that personal loan at least is eliminated. Until its gone, you don't have a lot of options since you are required to have a vehicle for work. You shouldn't drink a drop of alcohol that you pay for until a 49% loan is gone.

FYI, if your interest rate is actually 49%, your $382 monthly payment + $300 you said you have extra each month (682) would get you a payoff in 13 months. If you can make cuts in your budget and find an extra $500, the total payment (1182) would knock out this loan in 7 months.

mistymoney

  • Pencil Stache
  • ****
  • Posts: 786
Re: Finally Digging Out
« Reply #10 on: January 10, 2020, 12:11:44 PM »
your company pays you $100/day for use of your truck during work - in addition to your pay?

How many days per month is that? Is that included in the 100k/yr figure?

frugalfoothills

  • Bristles
  • ***
  • Posts: 274
  • Age: 31
    • Bulls, Bears and Beers
Re: Finally Digging Out
« Reply #11 on: January 10, 2020, 12:32:04 PM »
The truck is definitely not ideal but the real emergency here is the personal loan. The truck has already taken the big hit on depreciation at this point, another 6 months probably won't make too big of a difference and you need it for work, but that personal loan at 49%... yowza. My advice would be to spend every last cent (and then some! Use your spare time to make extra cash anyway you can) paying down that personal loan if you can't refinance, and you probably can't with your current situation.

That means making the minimum payment, plus the extra $300 you already know is leftover every month, PLUS everything you can save by cutting your expenses down to BARE BONES (housing, critical utilities only, child support, truck payment, and the smallest grocery budget you can handle), PLUS whatever extra money you can make by picking up side-gigs, overtime, doing favors for friends, getting creative, etc. Bare bones expenses really means you pay for nothing you don't need to survive or aren't legally obligated to pay for. No new clothes. No fun trips. No fancy dinners out. See what that leftover $300 turns into if you scale back as far as you can.

The loan only has $6,400 left and you make $100K a year. I have to think there is fat in your expenses that could be trimmed (that's why people are encouraging you to post a case study), and depending on how much fat, I think you can reasonably knock it out in 6 months.

mistymoney

  • Pencil Stache
  • ****
  • Posts: 786
Re: Finally Digging Out
« Reply #12 on: January 10, 2020, 12:50:09 PM »
building on frugalfoothills points....(although 49% seems almost criminal....loanshark rates?) the personal loan balance is not too large.....

49% is still only about $265 per month in interest. Every dollar toward principal is a win and will reduce the interest next month. Try to do a few austerity months to know it down a little, and then see how long you can keep it up.

As is, your payment is more than 100 over interest, and adding the 300 extra should more than halve the balance within a year. I think even without doing a lot extra you can pay it off within 18 months.