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Friday, March 29, 2024   
 

Pickup Payments
by Scott Bilker
Scott Bilker is the author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. He's also the founder of DebtSmart.com. More about and DebtSmart can be found in the online media kit.
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Scott Bilker

Mr. Bilker,

I really enjoy reading your newsletter and have gotten several good tips from it. My problem is that I have a Dodge pickup (pre-owned) 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 with the fact that you have about 2.5 years to go with a $13,000 balance, making monthly payments 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 of things that I would consider implementing 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 will 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. Finding a quality vehicle is also important. The toughest part here is going to be negotiating with a dealer, making this my least favorite option. However, I do mention it 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


Reader Comments
" I liked the fact that several options were offered instead of a one-size-fits-all solution. The only part of the article that I felt was overlooked was the fact that the reader has an interest rate of 15% on a vehicle so odds are the owner does not have the credit to get a credit card with a lower interest rate. If this were possible we would be doing it. Adding the realistic facts. I enjoy reading this newsletter and very often take away from it advice that is both useful and practical."
--Dawn Schley
 
" I like the options that you gave her. I am in the same boat my interest rate is about 14% and i need the car. I don't know who will refinance me with my low credit score."
--German
 
" I like that you gave three options. I would also check into refinancing the truck maybe through a credit union at a much lower rate than he is paying right now. I would stay away from credit cards and maybe even car dealers. I would use the cc only if I could get a 0% rate or very low rate. thanks for all your advise. I love reading the letters and pass on much of the information."
--Lou Ann
 
" Good article. Like all the options you provided. I think this might be my first (possibly second), newsletter. There's some really useful and practical information to be gleaned. Glad I found your website!"
--Diane D.
 
" This is a very appropriate article. It deals with a problem people may be having right now, especially with the cost of cars so high and the uncertainty of the automobile industry at this time. Like the others who commented, I liked that several alternatives were given to choose from. It's always nice to have some kind of a choice! Although it is true that people with good credit wouldn't have such a high interest rate, if a 0% credit card can be obtained, not only is there a savings on the loan, paying off the credit card is bound to increase the credit rating. I know what it's like to be scared and in-debt. This would help a lot--this article offered 3 solutions--Good Job! With an expert like Scott doing the article, there's nothing I know that could be any better. It was great. I'm still in debt, but I'm no longer scared. When I WAS in debt and very scared, it would have helped a lot to have known about DebtSmart. Feeling scared and alone is worse than having the debt. Thank you, Scott."
--DebtSmart Reader
 
" Stay away from credit cards, the most important thing to learn from this article is that you cannot afford a truck that costs $22,000 as much as the reader thinks they can. $524 is way too much for anyone to make payments on a car. They have to think about what they do with a truck that will return them $524 a month as an investment. Most people do not understand that a car if looked as an investment is a horrible instrument. So buy a cheap reliable $1000 Honda civic and realize you are not as rich as you think you are. It is irresponsible to suggest that moving a secured loan into a non-secure loan is a good idea. The reason credit cards are unsecured is that they terms of the rates and limits can change, as we see now in the economy. Credit card companies will change rates on this reader since he already seems to have poor credit. Putting him at the mercy of credit card companies is worse. I would suggest this reader to take things into their own hands and sell the truck private party to get the best price before buying another car. When he sells the car and the deal is done, then he should take a very long time and buy a used reliable $1000 Honda or Toyota and save $1000 for unpredictable repairs. Use this car until the cows come home and never buy a car over $5,000 again! and never get a loan over 8% interest. If anyone offers you anything it means YOU SHOULDN'T BE BUYING A CAR."
--Joseph Wu

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