Wife & I need help with decision

[Shred_Debt]

Hello All!

I posted in another part of the blog and had great responses. My wife and I were set on a plan, she gave me another "idea" and now I am a little apprehensive of what is the best choice...

Current Cash on Hand: $23k in our checking.  This is after selling our 3rd rental property and paid off a line of credit we had.

Current House Hold Income: $75k + Rental income: $22k 

Primary Home:
- Owe: $123k    Just appraised 2 weeks ago: $164k

Rental Property #1:
- Owe: $43k    Value: $70k-75k
-- Net Profit per month: $530

Rental Property #2:
- Owe: $56k  Value: $65k-$70k
-- Net Profit per month: $245
      -- Plan to sell this Spring of 2016.

Rental Property #3:
Sold.

2001 Chevy 1500
-- Paid for: worth $3500-$4000

Debts:
-- 2010 Acura TSX: $18,000 balance left on loan ($297 Monthly payment): 3.75% interest rate
           -- 57,000 Miles.
-- 2004 Lexus RX: $14,740.30 balance  ($370 monthly payment) took out 48 month loan: 4.25% interest rate
           -- Hovering just over 100k miles.
-- Credit Cards: $16k total balances
-- Student Loan: $5400   
-- Mortgages that are listed above.

Here are the options that her and I have come up with:

Option #1: Pay my wife's Lexus off ($14,740.30) and then sell the Acura to either a dealership and or CarMax and have to pay $3k to get out of the car loan... Drive the paid for truck. Take her monthly payment savings and start crushing the credit card debt.  I'd have around $5000 left in the bank if I did this to pay towards the credit cards and I'd not be paying out $370 monthly by paying off her car.

Option #2: Sell the wife's Lexus, she will drive the truck and put $10k towards the loan of the Acura.  For her Lexus, if I sell it to a dealership and or CarMax I will need to come up with $3k or private party I may break even. Take the remaining $10-12k left in the bank and pay on credit cards. Take the Lexus payment savings, add it onto the current Acura payment and pay it off within 12 months or less.  I'd save her $370 payment and put it towards the Acura payment.

Option #3: Sell both cars... Wife drive's the truck and I will drive the $3500 Civic. If we sold both cars and had to come up with money, we'd spend worst case scenario $8k getting out from under our cars and then also have to buy the civic (or whatever car we decided on).  Or I could try to sell both vehicles private party and break even. Then I'd still have the $23k to buy a beater car and pay off the credit cards.  Also, I'd be saving the car payments of $667 to invest with and save.

Option #4: Mustache Help ha!

Side Note: My wife doesn't ask for much and she is wanting to become a mother soon. As much as I want to shred the debt hardcore 100% petal to the metal... If I could pay off her car and let her keep it, I know she'd be on board for sacrificing anything else we needed to. I'd really like to pay her car off, let her keep it and crush out debt. She will sacrifice the Lexus and drive a 2001 Chevy that's our "beater" truck but happy wife, happy life. She's willing to do anything, that's why I am hesitant to get rid of her car... We are newly married (Sept. 2014) and we plan to start "trying" for a baby within the next 12-18 months or when we feel we are financially able to enough.

[tarheeldan]

It would help if you added estimated value of vehicles but sounds like combined equity is negative 3k?

More important, what are interest rates like on $16,000 in credit card debt?

[dandarc]

And the interest rate on the student loans?

[AZDude]

#4 - Pay off CC debt, assuming this has higher than a 4% interest rate. Pay off Student loan. Sell Acura, trying to find a deal where it costs you $2600 or less(since, unless my math is wrong that is how much savings you would have left). Not sure what the monthly savings would be, but probably greater than $667/month.

At that point, you would only have the Lexus debt left, other than mortgage, and assuming $700/month in savings, you could be free of it in about 16 months. 16 months from now, you have no car, student, or credit card debt and would have something like an extra $1,000 per month, while still keeping the Lexus and making the wife happy.

[Shred_Debt]

It would help if you added estimated value of vehicles but sounds like combined equity is negative 3k?

More important, what are interest rates like on $16,000 in credit card debt?

-- Acura Private Party: $16,000-$18,000
-- Lexus Private Party: $12k-15k
-- Credit card rates: 0% until June 2016 on $6k, 0% interest on $5k until December of 2015 and the other is 13.75-15% on the remaining.

And the interest rate on the student loans?

Student loan is 3.4% on $3k of it and the remaining is 6.5%.

#4 - Pay off CC debt, assuming this has higher than a 4% interest rate. Pay off Student loan. Sell Acura, trying to find a deal where it costs you $2600 or less(since, unless my math is wrong that is how much savings you would have left). Not sure what the monthly savings would be, but probably greater than $667/month.

At that point, you would only have the Lexus debt left, other than mortgage, and assuming $700/month in savings, you could be free of it in about 16 months. 16 months from now, you have no car, student, or credit card debt and would have something like an extra $1,000 per month, while still keeping the Lexus and making the wife happy.

I was actually just typing "what if" when you responded.  I like this idea as it was something I thought of but didn't bring to the table as in my head I have the "eliminate CAR PAYMENT" screaming.  If I did your idea and followed through with it, I'd be able to take my Acura payment that I wouldn't have, put it on top of the Lexus payment, take my rental income profit and put it on top of it as well... I believe I could have it paid off in 11 months. 16 months still wouldn't be bad at all. At that point when everything besides mortgages are gone, I'd have a great amount of $$ per month to invest with and buy more properties.

[Shred_Debt]

My wife came up with another scenario before we make our decision this evening...

Sell both cars: Say have to spend $7-8k selling them. That'd leave us with $15-16k in the bank. Take $5k and buy a car in cash. Take the remaining $10-11k and pay towards the credit cards and be left with $5-6k in credit cards after doing this. I would eliminate $667 in monthly payments, lower my insurance premiums per month saving roughly $700-750 per month. Take the $700-750 per month along with my net profit off the rentals and pay $1500 per month on the credit cards, paying them off in 4 months. After the 4 months has passed by, using the same $1500 a month plus the minimum credit card payments, I'd pay off my student loan in 3 months.  After 7 months I'd be debt free besides my mortgages. 

[Fiveyearclub]

Yep that last one sounds like the winner for me.  Get yourself out from under the crushing debt, then you probably won't event want the cars back when you begin learning about how quickly you can grow your wealth through investment...

[Shred_Debt]

I noticed something a bit odd about how you are approaching this.

You seem to start each discussion with the option that will actually be the most financially costly to you, rather than figuring out how to optimize the application of the available money.  So you mention several times the likelihood of selling one or both of your cars to a dealer, which leaves you short on the loan balance, rather than prioritizing looking for a private sale.  Or you mention the fact that you currently have 0% interest deals on two of your credit cards, and then the one with the RIDICULOUS 13-16% interest rate is mentioned only as an afterthought.

DUDE -- wake up!  We are all about optimization here so you need to start attacking this stuff in the order that makes sense financially.  There are two ways you can approach this:

1)  The Dave Ramsey method.  Works for a lot of people because it gives you psychological momentum in paying off debt rapidly.  Basicially you line up your debts smallest to largest and hit them off one by one, putting as much as you can toward the first debt on the list, paying minimums on the others until that one is paid off, and then "snowballing" the remaining payments into the second debt on the list, etc. 

2)  The "pay the debt with the highest interest rate off first" approach.  This is what I would do in your case.  Tackle that credit card with the high rate first -- you can pay that out of cash available.  Also pay off your student loan with the 6.5% interest rate. 

Then decide if you want to sell one or both of the cars.  Personally I would only sell the cars private sale, and be patient about it.  There is no need for you to sell at a loss at this point-- you aren't on the verge of bankruptcy, and once you have the high interest credit card and student loan paid off you will have more wiggle room in your budget.   Wait for the right private buyer at the right price.  In the meantime, you can be making extra payments against the Lexus loan to bring the balance down faster.  Once that is gone/replaced with a cheaper car you can do the same for the Acura.  Keep an eye on the 0% credit cards, too, to make sure you pay those off in time.

I understand that you urgently want to be out from under debt and past mistakes, but there is no reason for you to lose $7-8k from a speedy sale of the cars to a dealer.  That is nearly 1/3 of your profits from your rental sale!  Hope you have also set money aside for the taxes on that.

I think you can definitely be debt free in a few months, and whether you take the Dave Ramsey approach or the highest interest first approach you can do it without taking a $7-8k hit on the cars.  You already  made your mistake purchasing them in the first place.  Just hang on a bit longer, work the payoff system and you'll be rid of those payments in no time.

lhamo... I must say you've noticed the ADHD side of me which is sporadic, impulsive part of my brain that tries 101 ideas.  I appreciate your response sincerely. So much so, I printed it off, took it to my wife, handed it to her and told her to read it.

My wife's response, "I agree with them and he/she seems pretty bright and logical... funny thing is, I remember telling you to do this. Glad someone else agrees with me. Tell them I said thank you for taking the time to respond."
I have always been one to have a 101 ideas about how to do something. When I feel "stuck" I eliminate things the quickest, not always the most efficient way. For example, selling the cars to the dealer verse waiting for private party.   

[Faraday]

I'm with lhamo on this: whack the debts first, take your time on selling the vehicles. By eliminating the credit card debt first, you can free up cash flow and take your time figuring out what to do about the cars.

I read you loud and clear that you've realized the cars don't justify the cost, but don't take a bath on them by being in a hurry to get out from under them. If the right buyer comes along and will pay what you need to pay off the loans, feel free to take their offer, but don't short-sale the property right out of the gate - pay off the debts, see how your cash flow goes, then deal with the cars. ESPECIALLY since winter will be here in six months or so and selling a car at year-end is a bad deal all around.

Now, given that the wife wants a little one and is willing to sacrifice to get that little one (and you seem to be happy to help her reach that goal), I would advise against using the truck for the wife (I drove a GMC Sierra for years - not a good baby car and not reliable enough, IMHO.) Does the RX make a good, usable "Baby Car"? That could justify holding on to a car that you well know the history on.