Dave Ramsey

I have a 2002 Ford Explorer with 126k miles on it. It is still running good but I wonder how much longer it will. I owe about $8900 on it and a dealer recently offered me $5000 on a trade in. I guess the smart thing to do is keep it and hope nothing major goes wrong before I get it paid off. I have a little less than 2 years to go on it. I have considered strongly trading it in and rolling over that negative equity because I get such a good price on a used pick up. Anything with a V8 is cheap right now.

The car is really the least of my problems though. I have a lot of credit card debt. I am aggressively paying on it but it is going to take a couple of years to pay it off. Part of me thinks it would be better to just get a newer car as long as the payment does not go up much. That way I can concentrate on the credit cards and not have to worry about the maintenance bills on the old car. I had to spend $700 on it a few months ago.

 

The thing is, you have to break the cycle of rolling over negative equity. You will never get ahead if you keep doing that. If a dealer offered you 5K, you probably could get more than that from a private sell. Check Kelley Bluebook for the private re-sale value of it. Seriously, if you could get 7K-8K, you could finance the difference and maybe another 3 or 4K for a small car to get you by for the next couple of years and saves you money on gas. So, you would have the gas savings and have your car loan down from 8900 to 4-6K. seems like a decent deal to me. Put it in your debt snowball and knock it out when it comes up. Once you are debt free, take your old car payment and start setting it aside. That will add up quickly.

The thing is that cars are the largest purchase you will ever make that is going down in value. It's just terrible what it does to your net worth. The average millionaire drives a 1-2 year old used car that they paid cash for. Heck, look at what Buffett and Sam Walton (before he died) drive/drove.

 

The private party value is pretty close to what I owe on it according to Kelly Blue Book but I doubt I can get that much for it. I put it in the local sale paper for $7900 but I have had no calls so far.

I hear Dave tell people on the radio and in his articles that when they are in this situation they should sell the car for less than they owe and take out a loan for the difference. If I sold it for $6k I am not sure I could get a loan for the $2900. My credit has suffered because of all my credit card debt.

 

You may have to sit on it for a while. The re-sale market for SUVs has basically collapsed so you probably wouldn't get private market value right now. I'm not sure if this is your only car but if it isn't, you could park it and drive something else and hope the market comes back (especially if gas prices drop this winter).

 

Do you have a HELOC?

 

Yep, could pull the difference off of there. Though, theoretically, your HELOC rate may be higher than your auto loan so that might not be a good trade (though the tax deductability would offset that to some degree).

 

I was referring to the tax benefit you mentioned. His home would be on the line so that's always a concern. I for one have never had a HELOC as I think it would be to tempting to buy stuff with it. I did consider one for the car we bought several years ago but decided against it.

 

That was one of the debts we had and yes, it is tempting if you open it. Incredibly dumb though.

 

It's similar to an ARM mortgage/credit card in my opinion. Great products if used properly and in the right situations. Financial suicide if used like most Americans tend to use them.

 

I had a HELOC when I owned a home and it got paid off along with the base mortgage when I sold it last year. I had an ARM too and never got in any trouble with it. I am renting right now though so that option is off the board.

I need to just keep the car another 6 months. By then I will have paid off a good portion of the negative equity and probably improved my credit rating by paying down my other debts.

I just pulled my Equifax score and it was 626, I am not sure I could get financed if I did trade. If so it would probably be a high rate. I have 7.25% on the current auto loan. It might double on me if I trade. I am not sure why my score is so low, I have a good payment history and I am not behind on anything now but I have some cards that are close to maxed out....