Advice on Car Equity and Debt

**bjl584** · 08-28-2013, 04:50 AM

What is your income?

Leasing is usually always a bad idea. And, unless you are earning $200,000 a year, A $600 a month car payment is insane. What type of car is it? Can you easily sell it?

My initial thought is to sell it, pay off the cards, then use some of the 8K that you have in savings to pick up a car for cash.

**Wilbur1** · 08-28-2013, 04:54 AM

Advice on Car Equity and Debt

Income is 150k. Lexus GS460 w/60k miles...well maintained and excellent condition. Agree 600 mo. car payment is crazy. But I'm in it now aren't I?

**bjl584** · 08-28-2013, 05:19 AM

Originally posted by Wilbur1 View Post

Income is 150k. Lexus GS460 w/60k miles...well maintained and excellent condition. Agree 600 mo. car payment is crazy. But I'm in it now aren't I?

You're in it unless you are able to sell it.

Do you have any other assets or anything that you can sell to raise money to get the car loan and/or the credit cards paid off?

Selling would be a good option, but if that isn't possible, then you need to raise capital any way that you can to get the debts paid off. Then, keep the car for the long haul and never use the credit cards for anything that you can't pay off in full by the time the bill comes.

I'd like to see a more detailed breakdown of your budget if you are willing to share.

You are making a good income at $150K. It seems like you have a spending problem more than an income problem. Where is all the money going? What is the $10K in credit card debt from?

**kork13** · 08-28-2013, 07:33 AM

Originally posted by bjl584 View Post

My initial thought is to sell it, pay off the cards, then use some of the 8K that you have in savings to pick up a car for cash.

This is my first reaction as well. If selling it is a possibility, this is probably a good route.

Originally posted by bjl584 View Post

You are making a good income at $150K. It seems like you have a spending problem more than an income problem. Where is all the money going? What is the $10K in credit card debt from?

This is the bigger problem. With your strong income, there's little reason you should have credit card debt. Whatever course you take, you need to trim down your expenses. Also, I would expect to see you with far more in savings given your income......

Another question: what are the interest rates on your credit card & car loan? If neither of them are terrible rates (car >6% or CC's >10%), you might just consider keeping everything as is, cutting down your unnecessary expenses, and focusing the freed-up cash flow toward paying off your debts.

**ua_guy** · 08-28-2013, 07:58 AM

This board drives me nuts sometimes. The rule of thumb with regards to car payments is no more than 10% of your gross income on no longer than a 36 month financing agreement. The "car payment" in this situation is not insane.

At $150,000 annual salary, a $600/month car payment works out to 4.8% of gross income. There are a lot of people on here viewing that monthly payment from the standpoint of an opportunity cost, and it's also coming from people who don't necessarily value driving a nice vehicle. The payment is fine. You owe approximately $11,500 on it, and in another year and half, it will still probably be worth between $10k-$20k or slightly more depending on how many more miles you put on it. All indicators (without knowing your interest rate) say you're in a pretty good spot on your car. If it's worth low $20k's right now-- a Lexus GS460-- the depreciation curve has mostly flattened out at this point. I'm guessing you had it on a 60 or 72 month loan when you bought it. That's not great, but again, you've reached a sweet spot where it seems worth keeping.

The opportunity cost of the car payment is worrisome, however. At $150k/year income, you should have more of a safety net, and your spending should be limited to a point where you can look at a $10k outstanding credit card bill and whack it down to nothing in about 6 months without hurting too badly. I mean, you're pulling in $12,500 gross per month. Where is the rest of your cash going?

End result - Do not sell the car. Please share in broad categories where you are spending your income and I'm willing to bet people on here have some advice on how to thin out some of that spending to zero the balance on your credit cards and to start stockpiling a decent emergency fund.

**Wilbur1** · 08-28-2013, 08:33 AM

Advice on Car Equity and Debt

Some really great feedback; it is much appreciated.

Part of where my income goes is maxing out the 401k; I'm over 50 so I'm trying to save as much as I can. Also, I just recently paid off a divorce settlement, so my cash flow is improving as we speak but haven't realized the benefit of that yet.

I understand the rule of thumb is to have 6 months of savings. Now that I'm paying out less, I can concentrate on building that. I just don't like having that 10k hanging over me. Part of that 150k comes in bonus at the end of the year, so this will be the fist year it is "all mine". So I could whittle it down until Dec then pay off the rest then.

The other piece, and yes I know I need to do it, is control spending. I'm working on that...but, and please don't judge too harshly, but I've remarried and have a new wife and stepdaughter whom I admit I've spoiled a bit out of the gate here.

**Wilbur1** · 08-28-2013, 08:50 AM

Advice on Car Equity and Debt

Brian,

In answer to your question as far as other assets go, I have a few tangibles, some with emotional value/family significance I don't want to let go of. I have few toys; mostly a guitar collection I've toiled years to put together. The old man's WWII rifle, mom's Lladro collection. In short, I don't have any assets I'm willing to part with in exchange for wiping out that 10k.

**bjl584** · 08-28-2013, 08:54 AM

Originally posted by ua_guy View Post

This board drives me nuts sometimes. The rule of thumb with regards to car payments is no more than 10% of your gross income on no longer than a 36 month financing agreement. The "car payment" in this situation is not insane.

My response to that is that it is insane because he is earning $150K a year but has 10K in credit card debt and a car payment north of $600 a month. I have a feeling that those two facts are only a small piece of OP's overall financial picture. I think OP has a spending problem. If a spending problem exists, then carrying 10K in credit card debt and a $600 car payment around is quite insane. That is the reason OP makes $150K but still has 10K in CC debt and a $600 car payment.

The rule of thumb only applies if the rest of your financial household is in order. I don't think that it is.

**Wilbur1** · 08-28-2013, 08:57 AM

Advice on Car Equity and Debt

ua_guy,

The car is an '08 I bought on a 4 yr note in '11. So yes the depreciation mostly absorbed by somebody else.

I think my plan is going to be:

1. Keep the car; pay out the note and enjoy no car payment. Interest is at 1.9%
2. Once car payment finished, take that cash and put it toward paying down the mortgage.
3. Pay down 10k as much as I can until December, then pay it off with bonus.
4. Start stockpiling cash in savings.
5. Meantime, analyze budget and cut spending.

**Wilbur1** · 08-28-2013, 09:00 AM

Advice on Car Equity and Debt

Brian, you're right sir; I suppose that's why I came seeking advice. But I think I see the solution, as indicated in my previous post.

Thanks to all for your kind consideration and advice. I will post as to my progress.

**bjl584** · 08-28-2013, 11:03 AM

I'd focus on the CC debt before the mortgage debt.

What is the interest rate on the cards? It may be better to tackle those first then move to the car loan.

Advice on Car Equity and Debt