Sell spare car or pay off credit card?

[Specialized]

So I have a useless 2nd car now I no longer need or drive. It has been appraised at about 5k less than what I owe. The monthly payment on the car is $250. If you include what it costs to insure it and yearly taxes it is more like $300. I also have 2 credit cards at 30% utilization which costs me about $300 combined as a minimum payment. To pay them off would cost $10,000, but of course any payment made will reduce the monthly minimum. I have $5000 saved right now that I can use to pay off the car and sell it immediately, saving me $350/month. Am I better off working on paying off these cards first and keeping the spare car since it is an asset of sorts, or should I dump the car as it is depreciating in value and work on the credit cards next?

[GrowingTheGreen]

What are the rates of each of your lines of credit?

[norabird]

You could still get money for the car when it sells, right, and put that on the credit card?

[Felicity]

You could still get money for the car when it sells, right, and put that on the credit card?

It sounds like they have a car loan that would need to be paid off when they sell the car (and the loan is larger than the car's value)?

Here's a really cheesy infographic on car depreciation: http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html

OP - I'd find out the expected depreciation for your car over the next year or so, and compare that to the interest costs on the car loan and the interest costs on the credit cards.

[Fishindude]

Not a bad strategy to dump the car (since you don't need it), clean up that loan, then attack the credit cards.

[Jack]

I think we need more information:

• You say the car you're considering selling is the second car. What year/make/model is it? And what year/make/model is your first car, and how much do you owe on that one? For all we know, it's entirely possible that the best move might be to start driving the second car again and sell the first one instead.
• How much is each car worth, and what is the interest rate and amortization schedule of the loan(s)? How much longer do you expect to be underwater?
• What are the balances and interest rates of the credit cards?
• Once you do use up the $5000 lump sum you have now, how much monthly cash flow do you have to throw at whatever debts are left?

By the way, "monthly payment amounts" are entirely the wrong way to frame the issues. They're mostly irrelevant; it's the balances and interest rates that matter.

[MickeyMoustache]

Like others said already, need the balances & interest rates to give good advice.  Also, what are the models of each car/year/loan amounts on them?

[AZDude]

Without any other information, paying off the car and then using the extra $300 a month to pay off the CC makes more sense. That could change if the car rate is 0% and the CC 20% or whatever.

[neo von retorch]

Yes to the above. As you said, the car is depreciating. Losing value each day. So you've got a car losing value, costing you insurance, registration, interest, and taxes (?) compared to credit cards which cost you interest. If the interest is high enough on the credit cards, it might tilt in their favor, but once the car is gone, you'll be able to get rid of the credit cards in, say 20 months ($10k @ $250 / month) or less.

[Specialized]

This is not an emergency situation, this is simply a decision point to attack which debt most logically. I wont be selling my first car. Car #2 was meant for my live-in girlfriend who has since left me, herego it is now dead weight and I simply do not want it anymore.

The car balance is $16000, was appraised for $11000 (she damaged it). Interest rate is 1.99%

The 2 credit cards each have a limit of $15,000, and each currently have $5000 on them, for a total of $10,000 debt. Their interest rates are 19% and 16%. I use them to pay all bills and earn points, and in a way they can serve as a lifeline to support myself if I lost my income, therefore I prefer to keep them at $0 obviously. I just got racked up in debt over this new girl.

Since the payments on both the car and cards are relatively the same, nullifying either should have the same immediate benefit. The question is the longterm prospects. If I clear the cards I'm stuck with a car that may lose even more value over the year, costing me more money. The upside is that I have the cards as a backup plan if I lose my source of income. On the flipside, if I get rid of the car I'm guaranteed to be able to pay off the cards sooner anyway, however I am just wasting some money on high interest and I shorten the window of survival since I'm already at 30% utilization if I have to suddenly survive off of them.

I am self-employed which is the reason why there is this ever present need to make sure I can pay all bills at all times.

[Jack]

Okay, then. First point of advice: quit going into debt for women!

Second: Your car payment is currently costing you $26/month in interest. Your credit cards are currently costing you $78 + $66 = $144/month in interest. Unless the car is depreciating by more than $118/month (and since you won't tell us the year/make/model it's impossible for us to guess whether or not it is), it makes sense to pay off the credit cards first.

(Obviously, because of the way amortization schedules and depreciation work, these numbers are only valid for the current month. The longer it will take you to completely pay off all three things, the more necessary it is to do a more complicated analysis that takes the non-linearity into account.)

[Specialized]

The car is a 2014 Kia Soul Exclaim edition with 55k miles. Yes I have learned my lesson about squandering money on women :) I had a feeling paying off the cards was the most logical thing to do, it's just seeing something sitting in the garage collecting dust costing me nearly $300/month is excruciating.

I know we arent supposed to look at things in terms of payment, and normally I dont (such as when it comes to car purchases) but in this instance it's a payment I am stuck with so I felt I had no other way to quantify it. I suppose with the cards paid off the spare car more or less "pays for itself", at which point I can begin tackling that debt so I can get it sold, and since it is a tangible asset I can still drive it if something happened to my primary car, family needed it, I become homeless and decide to sleep in it, etc. :)

I just paid off full balance on Card #1 now.

[MickeyMoustache]

Good job paying off the first card!  An unorthodox suggestion would be: while you work on the 2nd card, I wonder if you could rent out your car to someone you know who might need one?  The good thing about the Kia Soul is, it should depreciate a bit slower than most other cars because it's fairly popular these days and has a good price/value for its features.  Do you have any friends or family that could use a loaner?

If not (let's be honest, probably not) the other option is to list it a bit higher than you normally would on craigslist and be very patient with offers, if you end up getting $1k over appraised it's probably worth selling it and changing paths in what you pay off next.

Good luck!

[Tigerpine]

Okay, then. First point of advice: quit going into debt for women!

I second this sage advice!

[Daleth]

If she damaged the car, could you use insurance to repair it and thus bring its value closer to the loan value?

[Paul | pdgessler]

This is not an emergency situation[...].

News Flash: Your Debt is an Emergency!!

[phred]

The 2 credit cards each have a limit of $15,000, and each currently have $5000 on them, for a total of $10,000 debt. Their interest rates are 19% and 16%. I use them to pay all bills and earn points, and in a way they can serve as a lifeline to support myself if I lost my income, therefore I prefer to keep them at $0 obviously. I just got racked up in debt over this new girl.

Could you transfer at least one card to a zero interest rate card for transfer balances?  Worrying about points may be locking you into wasting money.

[Tigerpine]

Points have value IF AND ONLY IF you carry a $0 balance over from month to month.

I have a rewards card that I use for most every purchase.  It effectively gives me a discount on my living expenses.  The only reason I get ahead at all is that I don't carry a balance.  I use the rewards to pay off part of the total balance and then pay the remainder.  Without exception.

If you're paying any interest AT ALL on your credit card, any value your points may potentially have goes up in smoke.

[Giro]

I would try to sell things or work a 2nd job to get some cash to try and get rid of the car loan.  I would also transfer the remaining 5k debt to a 0% card and try to pay that off pdq. 

[Jack]

I just realized I forgot to account for taxes and insurance for the car. Allow me to revise:

Second: Your car payment is currently costing you $26/month in interest plus $50/month (your estimate) in taxes and insurance. Your credit cards are currently costing you $78 + $66 = $144/month in interest. Unless the car is depreciating by more than $118/month $68/month (and since you won't tell us the year/make/model it's impossible for us to guess whether or not it is), it makes sense to pay off the credit cards first.

So, does a 2014 Kia Soul Exclaim edition with 55k miles depreciate more than $68/month? Somebody else will have to answer that, because I have no idea.

Of course, since you've now gone and paid off the first card, by the calculation above your monthly cost is a wash ($68/month vs. $66/month) before considering depreciation. So now it appears that the next best thing to do is to get rid of the car.

Once that's done, all that remains is to determine how fast you can pay off the remaining card. Giro's suggestion to transfer the balance to a 0% card might be a good idea. If there is no balance transfer fee, then it certainly is. However, most(?) cards have fees for the balance transfer. If we assumed that the fee were 4%, then it would only make sense to do the transfer if you were going to take longer than 16%/4% = 3 months to pay it off (note that number is a little off because I can't be bothered to account for compounding). Finally, if you did commit to that fee, then we have to pay attention to the fact that the 0% rate typically lasts more like 12-18 months. Because of that, it's mathematically optimal to wait and pay off the balance at the last moment, while investing the money you would have otherwise used to pay it earlier. Pulling that off correctly requires discipline -- and for nothing to go wrong -- so it's a risky strategy.

[Specialized]

One other thing to consider, the dealership will allow me to pay off the negative equity using my credit card. Since I now have a $0 balance on one card, I could load it back up to 5k again just to take this car off my hands. While the interest is higher, I am now stuck owing 5k instead of 16k. Back when my card had a 5k balance the monthly minimum was about $130 or so. So from a budgetary maintenance standpoint I am relieved of eating $220/month for the next 5 years or until I sell the car, and of course I can attack this credit card just as aggressively as before.