Posted on 02/26/2013 2:31:01 AM PST by Kaslin
Dear Dave,
I’m 27 and married, and we have two kids. I make $90,000 a year, but we have $80,000 in consumer debt—$48,000 of which is in car loans. The rest is credit card debt. My wife’s parents have offered to let us move in with them so we can get out of debt faster. Do you think this is a good idea?
Kevin
Dear Kevin,
If I were in your situation, I would not move in with the in-laws. You’ve got an absurd amount of money wrapped up in those cars. I’d sell the stupid things, start living on a budget and paying down debt, and keep my dignity.
In my mind there are only two scenarios where you’d even consider taking the in-laws up on their offer. One is where they’re absolutely wonderful people and you have a great, non-toxic relationship with them, where everyone involved knows their boundaries. Even then, I’d only consider this if it were for a very short, agreed-upon amount of time.
The second scenario would be if moving in with the in-laws were the only way to accomplish your goal. And you don’t pass that test. You guys can get out of debt pretty quickly if you’ll just lose these ridiculous cars! Think about it. If you had two little paid-for beaters, your lives would be so much different. You could even save a little money on the side while you were paying down debt and buy a better car as soon as the debt was gone.
If you can’t tell, I’m pretty big on maintaining dignity. You might love your cars so much that you’re unwilling to make the sacrifice. Not me. The money going into your automobiles is insane, and that’s your biggest problem!
—Dave
Dear Dave,
What do you think about the HARP program, and what exactly is it?
Ivy
Dear Ivy,
The Home Affordable Refinance Program is designed for people who have made their payments on time but are underwater on their mortgages. Being “underwater” means they owe more on their homes than the homes are worth. So basically it gives them the opportunity to refinancetheir home loans.
The HARP program is the only part of the Clinton administration’s Making Home Affordable program that actually worked. And to be honest, it has worked well. In contrast, the recent Home Loan Modification program is a piece of junk and all about political posturing. About 93 percent of the people who applied for a home loan modification didn’t get one. It was just another case of the governmentpretending to do something.
I’d advise looking into the HARP program if you’ve got a good credit history and you’re underwater on your current home. Lots of HARP program applications are being approved, and the deals are closing. That’s what really matters when you find yourself in a situation like this.
—Dave
Today there are no back lot mechanics who will fix your car cheaply.
There were few in Seattle, where I used to live. They are all over the place where I live now, central Kentucky.
And again, the computer stuff is easy. It tells you what’s ailing it. ‘Course, it may be telling you that you need a new transmission...
What’s absurd is buying a new car.
I drive 122 miles a day to work. The car now has 115k miles on it and has never left me on the side of the road. That has hard value. I’ll replace it with a new car. And I can get one for my purposes for well under $20k and I’ll drive it into the ground too. I’m done with used.
It sure is if he only makes $90,000 a year and has $80,000 in consumer debt.
Do the math. Are you really going to spend $14,000 in repairs on a $10,000 car over its lifespan?
I have not been stranded by a car in well over 20 years. Back in the days when I drove “inexpensive used cars” it happened enough to be a major headache on more than one occasion.
Then there is the piece of mind. You don’t even think about the possibility.
Take good care of your cars and run them until they can’t run anymore.
I had a Chrysler Lebaron convertible that I traded in for $500 on my Scion in 2006. The car needed a new roof, a new transmission, water pump, the front end could not be aligned because it was too worn and the car had 150k miles on it.
Our 2001 Chrysler 300m that we bought new has 180k on it. The AC is out and needs a part that is very expensive to replace. We reduced our insurance to the minimum, FOUR DAYS BEFORE A DEER RAN INTO THE SIDE OF IT AND WIPED OUT EVERY BODY PANEL. The check engine light is on because the transmission is in need of repair. The one year old front tires are in need of replacement because it won’t take an alignment.
We’ll be trading it in for $500 or so on probably a Kia Rio or Ford Focus. New. And we will repeat the cycle.
The AC and reliability is a big deal where we live.
I’ll add to your post that silver is actuall a metal being consumed by industry. Heck, they put it in socks now, for it’s bacteria fighting qualities.
The price isn’t absurd. But keeping that kind of car debt while choosing to live with In-Laws due to debt so you can keep that debt is absurd.
I agree with that one. Frankly, the fact that they are asking the question shows that they really have not grown up yet.
I make $90,000 a year, but we have $80,000 in consumer debt.
That’s insane he must be a democrat,he needs to learn how to save money not spend it all.
You are the exception that proves the rule. You keep your cars so long that the instant loss of value while driving off teh lot doesn’t really affect you.
Most folks who buy new trade off every three years or so. They are always underwater on their cars and never seem to learn the lesson.
While I still think you get a better deal by buying used I don’t think you are too far off because you hold the vehicle a long time.
I’m just too cheap to take that depreciation hit. (And I’ve only been stranded once in 35 years because of a mechanical breakdown. Wheel bearing went out. The other three were still in perfect shape.)
I’m just too cheap to take that depreciation hit.
One thing that is hot around here is “salvage” cars. They touch on that issue about resale value. They are a GREAT deal for someone like me who uses a car up. I actually just got a “mint” 2006 Chevy Silverado quad cab 4x4 for ten grand. It had been salvaged about three years ago (proved its reliability). I got it because our 13 acres is a plateau that you enter from the valley below. My driveway takes up up 80’ in the first 100 yeards or so.
BTW, that Lebaron convertible I mentioned... Bought it used for $5500 with 75k miles, put another 70k or so on it and traded it for $500. I got my money’s worth. And the car was a blast.
Meanwhile we paid $31k for the 300m and put 180k on it so far. No matter how you look at it, it was not as good a deal. As someone mentioned, $10k will buy a lot of repairs. Unless you drive a BMW or Audi, that is...
Are you talking about flood cars?
There are thousands of Sandy cars on internet auction.
I’ve wondered if maybe the flood damage isn’t nearly as bad as reputed, because these days the electronics are pretty well sealed.
Not flood cars. Just cars that have been in accidents. Sometimes it is amazing what little damage can total a car. I know a guy locally that makes his living buying and reparing them to “like new” condition. He then sells them for thousands less than they would otherwise cost. He’s doing the body work on my Scion right now (some guy backed into the front of it in a parking lot.)
He’s selling one of those new 2012 fiats with just a few thousand miles on it for ten grand. It looks and drives like brand new. It would be a good commuter for a guy like me, but I need something with a longer wheelbase. The big advantage of those, like smart cars, is their “urban friendly” size. It’s not an issue here. I need something that can cruise comfortably at 70+ for long distances.
Thanks.
Good call on the Fiat, those are just too small and the gas mileage increment isn’t that much (if any) over larger cars.
Italian design with Mexican manufacture.
...and the gas mileage increment isn’t that much (if any) over larger cars.
I’ve noticed that with cars like the smart car and the new Scion. They get slightly better mileage than cars like the Kia Rio, but are squirrelly on the freeway and have very little room. For my commute, the longer the wheelbase, the better. And room for the 7 hour drives to Chicago and 12 hour drives to the eastern seaboard.
I think owing $48,000 on two cars is absurd.
SPENDING that much may not be, but if you have to borrow the money, you shouldn’t do it to buy two cars that cost you that much in borrowing. I bought two brand-new Prius cars, for a total of about $48,000, but I paid cash for them both.
The problem is, I don’t even know if they can get rid of those cars and pay off their loans, because cars depreciate so fast.
I agree with you about how sometimes the old beat-up cars can be a drain on your pocketbook and your sanity — that’s why at some point I decided to get two brand-new cars, pay money for two comprehensive 7-year warranties, and then I didn’t have to worry about my cars for a decade.
On the other hand, if you can buy a $1000 car that falls apart after one year, every year, you’ll come out a lot better than if you buy a new $20,000 car and have to borrow $19,000 to pay for it.
Of course, you can’t buy a beat-up car anymore, they got demolished by Obama to as part of his plan to make poor people suffer and be more dependent on the government.
I think owing $48,000 on two cars is absurd.
It may be, but it is ridiculously common. Frankly, if it were not, the auto industry would be a shadow of it’s current self.
I tend to agree with you. That being said, when you can get a car for 2% financing, you are not paying much in interest over the life of the loan.
And I like to put it this way: If there were no such thing as credit, the motorcycle, motorhome, snowmobile, stereo and myriad of other industries would be mere shadows of what they are now. So would the employment numbers. The reason we’re in the mess we are in is that the credit overheated. To be blunt, a business that refuses to borrow to establish itself simply can’t compete with those that do.
Credit is a two edged sword.
Of course, you can’t buy a beat-up car anymore, they got demolished by Obama to as part of his plan to make poor people suffer and be more dependent on the government.
Heh, heh. Don’t worry, a lot of cars have gotten beat up since then. ;-)
Your point about business credit is right on.
In my industry we must purchase raw materials to sell. If I sell a $10K order, I will need to purchase $5K in materials. My customer will not pay until done, so I must borrow to produce. Simple.
The reason the home mortgage industry even exists is because it is rare that people could save $100K cash. On the other hand, if there were no mortgages available, would homes still cost $100K?
On the other hand, if there were no mortgages available, would homes still cost $100K?
They were built when I was in high school (graduated in 1972). The “loaded” ones were advertised at $17,900.
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