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Re: Help Me Prioritize - High Income, High Debt

Posted: Wed Nov 28, 2012 4:19 pm
by LeRainDrop
Cicero wrote:You raise a really interesting point about car financing. While I'm not aware of any banks or credit unions offering car loans for much less than 3.5%, the car companies are being pretty free with their 0% or 0.9% financing deals lately, including on late model used cars. It's precisely this sort situation that poses a financial dilemma for me -- it seems wasteful and counter-productive to defer paying a relatively high interest loan in order to avoid taking out a relatively low interest loan. But emotionally I don't like the idea of planning to take out more debt in the future. (Also, I'm probably susceptible to the way that so many personal finance talking heads demonize car loans.)

FWIW, I agree with Sarah's analysis about cash vs. loan for a car provided that you have at least one other loan at an interest rate that's higher than what you can get on a car loan, though I still wouldn't go with 100% financing because I'd always want to make sure the car's value is higher than what I owe on the loan and certainly never pay for gap insurance. The point is to use the loan as a tool, not as a necessity (otherwise get a cheaper car!).

My anecdote: I had planned to pay cash for the car I bought last December, but because I was able to get a 48 month loan at 2.14% (was with SunTrust, and I had no existing account with them whatsoever at the time), yet had a student loan remaining around 4.25%, I paid a little over half in cash, financed the remainder, and immediately put the rest of the cash intended for the car at my student loan instead. Once the student loan was fully paid off, I aggressively paid towards the car loan and just killed it last month. I did not take the 0% financing offer from the dealership because I did my research and learned about a $1,500 dealer incentive (you can only get one or the other), and doing the math, it was more profitable for me to negotiate for me to get the $1,500 benefit than to have 0% financing. In the end, I only paid $167 on interest over the 11 months I kept the loan (substantially less than the $1,500 up front savings).

Re: Help Me Prioritize - High Income, High Debt

Posted: Wed Nov 28, 2012 5:13 pm
by ssarah
I bought a 2009 Toyota in May and Toyota financed it at 2.99%. Then I got an offer from my CU that they would pay me $100 to refinance with them and the rate I got was 2.49%. They're advertising 1.89% for new cars.

Re: Help Me Prioritize - High Income, High Debt

Posted: Wed Nov 28, 2012 5:15 pm
by ssarah
But the beam of a laser hits the direct point you shine it at unlike a flashlight which lights up a larger area or a lamp whose light is even more dissipated... right?

Re: Help Me Prioritize - High Income, High Debt

Posted: Wed Nov 28, 2012 5:19 pm
by stannius
DoingHomework wrote:Just a pet-peeve alert - a laser produces collimated light. That is as close to the OPPOSITE of being focused as one can get. I know people use that term, but it's profoundly ignorant in my opinion. But I do understand your point.

I dunno about that.... a laser produces more focused light than a normal, uncollimated light. Especially at a distance. To keep abusing the metaphor, long distance (term) is just the kind of thing we personal finance buffs should be focused on.

ssarah wrote:And for my pet peeve... 1900 square feet is huge, especially in a high cost of living area! Not saying you should move, but don't act like it's a small house.

I think it is a bit foolish to base one's lifestyle on the cost of living in the area where they live. OK, well it sounds foolish not to do so now that I say it out loud. Nevertheless, a house is not neccesarily more or less "huge" just because of the area in which it happens to be located.

The only questions that should matter regarding that is: is Cicero's family comfortable in the space, or might they be just as happy in a smaller space? is paying for it crimping their other financial priorities (can they afford it)? It doesn't matter what nelson or ssarah thinks is a huge space or a huge interst cost; nor what I think, which FWIW is that 1900 is pretty decently sized but not huge, depending on how big his family is.

nelson wrote:You definitely don't need to put money in your retirement account (yet)* except to get the company match, which you said they don't offer. Same thing with savings for the kids college. You can easily pay for their college if you didn't have debt. The interest rate for the debts easily will beat the interest rate for savings (and investments can go either way, but you're here to provide for your family, not gamble).

It depends. Ignore a company match at your peril. And you can't just contribute as much as you want to retirement plans and college savings plans later - there are annual limits.

Re: Help Me Prioritize - High Income, High Debt

Posted: Wed Nov 28, 2012 10:31 pm
by nelson
The thing about a car is, the dealers will give you a lower interest rate on cars they make a lot of profit on. You're better off getting a cheap car for cash than an expensive one with a 0% interest rate.

And Allive, you should definitely pay off your debt. That will give you a greater return on your investment than investments will. Live by this rule: Never invest more than you can afford to lose. You just refinanced your home, that means you're in debt up to your eyeballs. You won't even be able to get a HELOC without equity. Yes, set aside cash (savings account) for emergencies just in case. But pay off your debt after that. You will be so much happier without debt and then you really can afford to lose on investments because you'll have a place to live (just save enough for the tax man).

Re: Help Me Prioritize - High Income, High Debt

Posted: Wed Nov 28, 2012 10:41 pm
by nelson
stannius wrote:It depends. Ignore a company match at your peril. And you can't just contribute as much as you want to retirement plans and college savings plans later - there are annual limits.
I agree that it's worth getting the company match. However Cicero said his company doesn't offer a match. Also yes there are annual limits on tax advantaged accounts but paying debts is tax free already (well, except for mortgage interest deduction but meh, there's a standard deduction you can use instead). Think of it this way, if I can save $1000 per year in interest on student loans, the IRS won't tax me on the money saved. They also wont tax me on money I put into a Roth. The difference is, the $1000 toward the student loan is a guaranteed high interest rate. There are no guarantees with investments. Plus, once all your debts are paid, you can max out the tax advantaged accounts without even trying. And you won't feel bad about it. You can use excess money for taxable investment accounts or vacations or whatever you want because you have no debt.

Re: Help Me Prioritize - High Income, High Debt

Posted: Tue Dec 04, 2012 3:04 pm
by Eagle
Cicero, have you considered ways to either increase your income or lower your expenses?

See http://www.getrichslowly.org/forum/viewtopic.php?f=14&t=47102 for ways to save money.

What items could you reduce or slash off your budget?

Re: Help Me Prioritize - High Income, High Debt

Posted: Sat Dec 08, 2012 8:39 am
by tazdollars
So, just a guess, but I'm betting your a 3rd or 4th year associate at a D.C. area or maybe Chicago area law firm. Am I close? :)

I was in your same shoes, except my home was a fair bit cheaper and my only debt was student loans. The only way out of this mess is focus, focus, focus on getting rid of that student loan debt. My wife and I bought almost nothing and would even have games where we could see if we could go a whole month without spending money on anything but gas, groceries, and utilities. We banged about $110,000 of debt out in 3 years that way, with some help from annual bonuses.

Turns out, after three years, I was so burned out from that job that I had to leave for a smaller legal market with a better standard of living. You know what? I was able to do just that (and have my wife stay home) because we had no debt. My quality of life went through the roof when I went to billing only about 2,000 hours/year instead of around 3,000 (no kidding).

Right now, you've got to realize you're an indentured servant and once you realize that, you can focus on working your way to freedom. I have colleagues now who make $250,000/year and still run out of money at the end of each month while carrying huge debts and they are miserable. I make significantly more than that, but maintain a lifestyle that I could sustain with an $80,000 salary and the peace and contentment from that is really immeasurable.

Sorry for the speech, but I want to encourage you to push through this so you can really achieve a life worth living.