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Pickup Payments
 Mr.
Bilker,
I really enjoy reading your
newsletter and have gotten several good tips from it. My problem is
that I have a 2000 dodge pickup on which I owe about $13,000 on and
it is only worth around $9,000. I am about halfway through a
five-year loan and am paying $524.00 a month. I married recently and
am having a baby soon so I need to find a way to either get rid of
this pickup or lower the payments. What would you recommend? Any
advice would be appreciated. Thank you.
Tracy
Tracy,
Thanks for letting me know that you
enjoy reading DebtSmart! Congratulations on your marriage and
pregnancy!
 You're
certainly in a tough position with the truck payments. It's good
that you purchased the truck used because the depreciation would be
even greater if that weren't the case, although it's still difficult
having that $4,000 difference between the value of the vehicle and
the loan amount.
Using my DebtSmart
Loan Calculator, and the fact that you have about 2.5 years to
go with a $13,000 balance, making payment of $524, I have calculated
that the original purchase price is about $22,000 at an
interest rate of 15%! Boy that's a huge interest rate and certainly
one of the main reasons that there is such a big difference between
the value of the truck and the unpaid balance.
Here are a few suggestions that I
would do if I were in your situation. That doesn't mean that you
should necessarily do these, it's just "what Scott would
do":
Refinance the outstanding amount
I
would look into finding a low-rate credit card, a rate lower than
the current rate on your auto loan, and paying off the truck with
that card. The rate I would use is 0% if possible. I have plenty of
0% offers that would cover that cost and you may too. Call your
credit card banks to find out if they would give you 6 months, or
one year, if you transfer $13,000. Even a fixed 3.99% would be great
and save you bundle of cash! You would also have the option to make minimum payments,
which may
increase the overall cost of the truck, however, it would reduce
your payments. For example, with a 2% minimum payment, your monthly
cost would drop to $260 from $524, and if the rate is 0% then it
costs you nothing to do this!
Sell the truck
Get rid of the truck
and eat the $4,000. You could then pay off that $4,000 with a
low-rate card and reduce that cost to say $80 per month. The
downside is that you will probably still need a car. If that's the
case, then you should hold on to the truck.
Trade in the truck
Get another car
(used) that's less expensive and roll that $4,000 loss into the
next vehicle. Although this is an option, you have to do the math
carefully to make sure that it works in your favor as well as find a
quality vehicle. The toughest part here is going to be negotiating
the deal with a dealer-that's why I wouldn't do this, however, I do
mention this option for completeness.
Personally, refinancing the
outstanding amount with a credit card is what I would do to reduce
that cost. I would want to hang on to the truck because I know its
condition and wouldn't want to risk having to add the cost of
fixing an unknown vehicle.
Hope that helps!
Regards,
Scott
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