Author Topic: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.  (Read 3305 times)

rdouglasellis

  • 5 O'Clock Shadow
  • *
  • Posts: 3
  • Location: Nashville, Tennessee
~~~~~UPDATE~~~~~~
(scroll down for part 2 if you like, these jokers mostly convinced me to keep the car)

In the past year with aggressive savings and a small cash windfall from a relative I paid off $5,000 of credit card debt and $7,500 of student loan debt. Both are down to zero (though I use the card for southwest points and pay the balance in full now each month now). I'm itching to move my new savings habits to an index fund, but one thing (seemingly) stands in my way.

A little over a year ago my 1991 Park Avenue finally called it quits. Under pressure from my (then) girlfriend and my car-loan-loving family, I told myself I could "afford," an entirely new car. I can EASILY make those monthly payments! Hell, I could even pay it off early. I must admit, those dealerships really do make it fun for a buyer. It's all fake and glossed over and I fell for the whole damn thing.

Fast forward a year. I'm trying to grow this freakin' moustache (by myself now) but there's a 2014 Nissan Versa Note in the driveway with $11,000 left on the loan (3.29%). If you do a quick KBB or Edmunds eval on this car (SV trim, like-new/great condition) you'll see my dilemma. I'm not upside-down, but it's close. I've got it on Craigs and Ebay Motors and have absolutely zero bites.

I'm afraid that in order to be rid of the car (and thus, loan) I might have to take a loss. So here's the question: Take a slight loss to escape the loan and buy a cheap car with cash, OR, stick it out with what's really a pretty great car and drive this mother into the ground? And finally, if the best answer IS to stick it out with the loan, do I devote all unused income to paying it quickly? Or could I be investing that chunk and paying the normal payment amount? I'd appreciate some help crunching these numbers and observing the necessary variables.

~~~~UPDATE~~~~~

Thanks everyone for the feedback. It sounds like most everyone would keep the car. Which begs the question: Funnel all future savings at the loan for quick payoff OR set up investments to counter the interest with nice growth?

More numbers:

Income - ~$45,000 (I'm a server so it has potential to fluctuate)

Expenses:
Rent/Utilities - 650/mo
Auto/Renters Insurance - 100/mo
Health Insurance - 180/mo
Phone - 75/mo
Car payment - 245/mo
Food/Drink/Gas ~ 350/mo (estimate, my Mint setup isn't tracking this very well)

In my least mustachian months I'm saving around 50% of my income. 60% in the good ones. If I pay the car payment as is, I pay around $800 in interest at the end of 4 years. So the question becomes, do I kill this negative interest as fast as possible with these savings? Or set up investments (IRA/taxable/whatever) and hope the returns outweigh the loan's interest?

« Last Edit: January 23, 2015, 01:48:18 PM by rdouglasellis »

neo von retorch

  • Magnum Stache
  • ******
  • Posts: 3327
  • Location: SE PA
    • Fi@retorch - personal finance tracking
Re: Advice wanted! Almost debt-free but for that DAMN CAR LOAN.
« Reply #1 on: January 23, 2015, 10:45:14 AM »
With that particular car, there's not as much incentive to downgrade, but that may depend on your driving habits (or the good habits you will have going forward...)

I drive a lot, not very Mustachian, but I still found it worth it to go from 2013 Mazda CX-5 (36k) to 2008 Honda Fit (56k) in exchange for $6000. Getting paid $0.30 / mile that I sacrificed was well worth it to me. With current gas prices, insurance and driving habits, my Fit is costing me ~$0.20 / mile to operate.

going2ER

  • Stubble
  • **
  • Posts: 200
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #2 on: January 23, 2015, 11:24:29 AM »
Personally, I would keep the car. It is likely good on gas and still under warranty.

As far as paying it off early, look to see how your loan is set up. If the interest is calculated up front and added to the loan, you will pay the same regardless of when it is paid off. If the interest is calculated monthly then there would be some savings to be had by paying it off early.

Catbert

  • Handlebar Stache
  • *****
  • Posts: 1707
  • Location: Southern California
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #3 on: January 23, 2015, 12:04:46 PM »
I'd k flueep the car and drive it forever. 

Not sure I can give you a clear answer on how hard to hit the loan beyond the minimum.  The longer the car loan is, the more I'd want to at least pay it down.  As a server with fluctuating income and probably little sick leave, I'd want a healthy emergency fund - maybe in the form of a Roth IRA.  It also depends on how much extra money you have monthly/yearly. 


MDM

  • Walrus Stache
  • *******
  • Posts: 9554
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #4 on: January 23, 2015, 12:28:55 PM »
...there's a 2014 Nissan Versa Note in the driveway with just over $11,000 left on the loan (3.29%).
...
So here's the question: Take a slight loss to escape the loan and buy a cheap car with cash, OR, stick it out with what's really a pretty great car and drive this mother into the ground? And finally, if the best answer IS to stick it out with the loan, do I devote all unused income to paying it quickly? Or could I be investing that chunk and paying the normal payment amount?

More numbers:

Income - ~$45,000 (I'm a server so it has potential to fluctuate)

Fixed Expenses:
Rent/Utilities - 650/mo
Auto/Renters Insurance - 100/mo
Health Insurance - 180/mo
Phone - 75/mo
Car payment - 245/mo

On the car: agree w/ other posters who say to keep it for 20 years or so.  Check the point raised by going2ER about the loan terms.

Not enough details on your cash flow to comment.  Do you maximize your tax-advantaged (401k & IRA - either traditional or Roth; HSA) investment opportunities?


MetalCap

  • Stubble
  • **
  • Posts: 114
  • Location: Washington DC
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #5 on: January 23, 2015, 12:42:28 PM »
The bigest thing to do is take the good days that push you over your budget for income and dump it into the loan.  Even rounding the car payment up to the nearest 5, 10 100 makes a big difference.

Other than that just keep on keeping on.

I've found that paying down the loans can be a bit tough after checking them every day and waiting for that paycheck to get your debt payoff fix/high.  I'm 2 months out from being debt free and I'm assuming it will just change over to obsessing over each up and down of the market and calculating how close/far you are to FIRE.

Hang in there and stay the course.  Maybe try to automate things as much as possible to relieve the stressful monitoring?

DeltaBond

  • Pencil Stache
  • ****
  • Posts: 526
  • Location: U.S.
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #6 on: January 23, 2015, 01:35:44 PM »
Keep it.  At least you didn't get a '14 Accord like I did, rolling over ANOTHER car loan into it.  I'll be paying it down and selling it next week and driving my '83 Mercedes diesel from here on out.  My husband and I can work on those cars, though.  If you can't work on cars, then just keep the Note and appreciate that you didn't get something WAY more spendy.

mwulff

  • Bristles
  • ***
  • Posts: 274
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #7 on: January 23, 2015, 01:50:29 PM »
What mpgs will that car get? I would recommend that you keep and drive it into the ground over the next 20 years.

rdouglasellis

  • 5 O'Clock Shadow
  • *
  • Posts: 3
  • Location: Nashville, Tennessee
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #8 on: January 23, 2015, 01:53:28 PM »
Hypermiling on road trips I can do 45+. Toolin' around town it's more like 35.

horsepoor

  • Magnum Stache
  • ******
  • Posts: 3142
  • Location: At the Barn
  • Horses: for sanity & poverty!
Re: Reader Case Study - Almost debt-free but for that DAMN CAR LOAN.
« Reply #9 on: January 23, 2015, 02:02:56 PM »
Your interest rate is pretty good, and it's an economical car, so I'd also say keep it.

At first glance, it seems like you should have enough income to max out a Roth and still pay extra on the car loan if it bugs you.  Also make sure you have an emergency fund with a few months' expenses before hammering on the loan too hard.