I appreciate your attempt at a creative solution, but any way I run the numbers, I come up with the idea that we have to keep the cars we have, and focus on paying them off.
The whole sordid history of these cars will make a semi-interesting post for my journal when that part of the site is running. But it was a lesson in trying to do the right thing, but relying on the wrong people to help us.
Here are some details. I know they're ugly, but post bankruptcy car purchasing is often ugly.
Car 1, 2002 Honda Accord. Purchased 1.5 years ago, on a six year note at 17.99% interest. Payments are $400/month.
Car 2, 2006 Honda Pilot. Purchased 1 year ago, on a six year note at 12.99% interest. Payments are $700/month.
Each car was 100% financed, including taxes, title, etc. (Again, long story, as is the story behind the purchase of the second car.)
Let's just say, I'm learning the errors of my ways. They're expensive life lessons, but I'll have learned them real good.
So, even if we just pay the current amortization schedule, both cars will be paid off in about 5 years. At that point, the Pilot will be 6 years old, with about 70,000 miles on it. That will be a car we can get many additional years of service on, and it will be worth about $16K
The Accord will be about 10 years old, with 150,000 miles on it. I'll have put 100,000 miles on it, so I know most of those miles have been under very good maintenance. Based on the current value of a 10 year old Accord with those miles and the equipment I have, that car will be worth about $4K, but nearing the end of its useful life, most likely. That car will be a good candidate for replacing based on the method of putting the $400 a month away for a year or so, and then selling the car and buying a decent used one for cash.
Our plan is to pay them down much quicker, so the numbers should work out OK for us.
If we were to sell the cars outright, and convert that secured note unsecured, we'd still have to have money to buy cheaper cars, and we don't have that cash. So we'd be financing an older car than what we have, and moving the average 14% to something much higher. That doesn't make sense to me.
Going to 1 car doesn't work since I work 30 miles from home, and I'd either leave my wife stranded all day, or she'd spend half her day driving me back and forth to work. Plus, we'd still have the unsecured upside down balance to pay on.
I'm going to definitely re-finance the Accord to lower the rate from the current 18%. Although that will increase the principal by any loan fees and new GAP insurance. (I know it's a waste, but I don't have the funds to cover a $7,000 loss in case of total loss) At the 10.99% I have been approved at, the savings will more than cover the additional costs. I'll keep the term the same, and devote the savings to the debt snowball.
I have also considered refinancing both cars, and extending the terms 1 year (yes, they'll actually let me borrow for 5 more years on a 5 year old car.) The idea there would be to free up even more cash for the debt snowball, and to provide some cushion as we transition to a single income family. But that feels an awful lot like 'borrowing your way to prosperity,' which never works, at least not in my case.
If I can pay these things off sooner than expected, and get any decent life out of the 2002 afterward, then I'll be a happy man, and living debt free!