Financial Question for You!

Updated on September 13, 2010
C.M. asks from New Baden, IL
18 answers

My hubby and I are in the process of listening to Dave Ramsey's Total Money Makeover. One of the main things he says is to get RID of your car payment!! Save that money each month and buy a car outright. That is a GREAT idea, however we owe more than our current car is worth. Any ideas how we can get out of this? I think we are upside down by about 3-4K. Ideas?

Also we have three 'debts'...(not counting student loans/mortgage) that we are attempting to pay off.

1. Credit Card #1 - around $150
2. Credit Card #2 - $1700
3. Car - $12K

Am I right in paying them off in that order? Once #1 is paid off, take the money I was putting towards that and pay extra on #2 and when that is paid off, put the money from #1 and #2 towards #3?

What can I do next?

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So What Happened?

Thanks for all the info mamas! I failed to mention that both my hubby and I do work (opposite schedules but it wouldn't work out to get rid of one car). We don't think it's possible to get rid of our car by selling it outright or anything else (we've talked to dealers). We talked over the weekend and will continue on our quest toward financial freedom!! Thanks again :)

Featured Answers



answers from Pittsburgh on

I believe Dave would say to try to sell the car outright to a private party. So that you can try to break even and pay it off. Don't have them takeover the payments. If you can't do that, trade it in on a car that you can use the trade + cash to GET even.
Listen to what you're saying--you are $3-4K UPSIDE DOWN--why continue to stay in that same trap?
Dave rocks!

1 mom found this helpful


answers from Kansas City on

All money advice will tell you, you'll pay off the total debt faster and cheaper if you pay the one with the highest interest rate first, then go down by interest rate, so that $150 (if it's the lowest) could go up, but not as much as the 12K will if the interest rate is higher. Pay minimum on lowest rate, and pay off the highest first, then move that extra money down.

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answers from Houston on

From listening to his radio show, he would likely say that you are better off selling it and paying the difference out of your pocket (assuming you have it) or trying to get a signature loan from the bank or credit union for the difference.

Good luck, I've been working on incorporating some of his methods myself.

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answers from Lincoln on

If your car is in good shape see if you can sell it to someone who's willing to just take over the payments. Sometimes people need financing, but can't get it and would jump at the chance to take over payments.

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answers from Houston on

I've never listened to or read Dave Ramsey, so I'm sorry if I'm getting involved in a topic I know nothing about, but wouldn't your interest rate on the loans be a determining factor as well? For example, if you have a 0.9% interest rate on the car you wouldn't want to pay it off, right? You're better off with that money in the bank earning interest for you then paying it to the finance company early.

Just curious....


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answers from Wausau on

Your goal right now is to pay off the debt, most likely you mistake with the car is you bought new. New is a waste of money, we have never bought a new car, used cars are not junk, they are what they are worth, used cars are marked up. We bouth an 07 van still under waranty for 12,000 , loan for 10,000 we now only owe 6,999 and it is still worth 15,000 trade in. That is how you buy a car, sure it is not the color I would desire, but hey! it gets me from place to place. That is being financially smart. Yes not having to have a loan at all would be the best but this is the road we will take to get started. We will be done paying it off in 3 yrs and after that we will still save that $$ so that when the van dies we can buy another car and hopefully we will be able to pay cash for it. or darn near close.

Play off high interest first starting with the lowest amount of the high interest and then snowball your way through. Don't think you need to sell your car you will just lose money.



answers from Boise on

Do you have the Total Money Makeover book? It's like $10 and has some worksheets in there that help you with your snowball plan. I think that you have the order of paying off correct. IF you can do without a car, he would recommend selling the car. I personally couldn't do without one, so I did credit card, car, credit card, credit card. We just paid off the car.

So, you pay the minimum on everything, then ANY extra you can find, put that to #1, even if it is $5 because you skipped a coffee this morning, etc. Then, continue with minimum payments when #1 is paid off, and add #1's minimum + ANY extra to #2, and continue.

Note - when paying extra off loan type things, like the car or mortgage, make your minimum payment normally, then do your extra to the principle! Even the couple of bucks will make a huge difference. If you pay online and they don't have that option, call the company and ask how you can pay to principle.

Good luck.



answers from Lawrence on

I think your plan sounds very good. I agree that getting rid of the car right now, might not be the best thing especially if it is reliable. One thing you didn't mention is if both you & your hubby are working or not. The reason I mention it is because I think it is also important to pay yourselves, in that, take a small amount even if it is like $20 or $30 and have it directly deposited from your pay check to your savings account. You will be surprised on how quickly your savings account will start building IF you don't need to touch it. Other than that congrats on taking this step! You can do it!



answers from San Antonio on

I'm in the financial peace university class right now. What Dave says is to do the "debt snowball." This means that you list your debts in order of amount (specifically not in order of hightest-lowest interest rates.) starting with the smallest payment.

So in order that you have listed them, pay off the first card, then add that amount that you were paying to the amount you are paying to the second card, then when that's gone you add all those payments to the amount you pay for your car. Never stop paying anything, of course. Once that's done, add all those payments to your student loan. (Maybe take a hundred or so extra into your home loan).

Do the FPU. You'll never ever ever regret it. I've never had debt other than my home (and student loans, but I got out of that quick quick quick.) and I feel like I had a good handle on finances, but this is a whole new level of smart thinking about money and I'm SO glad we're doing it.

Good luck!



answers from Kansas City on

My son the Dave Ramsey Financil planner said that yes that was the correct order. However, you might try a short sale on your car. You find someone who is willing to buy your car but will only pay you $10,000. You call the bank and tell them you have a buyer for $10,000 will they accept that as pay off. Either they will or they won't. Yes it will go on your credit bureau but after you have paid off everything and had good credit for some time that won't matter. Besides Dave Ramsey suggests you never use credit.
Otherwise, sell something or have a garage sale to pay off the first cc and then use the money from that cc to pay off the second one. then use that money to pay off your car.



answers from Kansas City on

My husband and I also went through the Dave Ramsey program and although we didn't follow it to the tee within less than two years we paid off almost $40,000 of which $20,000 was my car. We were also upside down in it and owed more on it than it was worth but we did it. It takes patience and a lot of dedication. If you are upside down in your car most likely you wont be able to get rid of it to be able to buy something you can pay cash for. However, try selling it yourselves on Craig's List and your loss on it might not be as bad as if you were trying to get rid of it through a dealership. When my husband received his company car we posted his car on CL and sold it for $200 less than what he owed so we just paid the rest out of pocket. Again, we didn't follow the Dave Ramsey plan to the tee but we did start with our biggest debt and worked our way down. We followed a budget and still do as we are working on our kids college funds and our 401K. Good luck to you!



answers from Madison on

I am coming from a different culture where the motto is "Cut your coat according to your cloth." So you live by the means you have and you do not spend the money you don't have.This makes it hard for me to understand why a person would go and buy a new car worth >$12k while they still owe money elsewhere (student loans etc).
If you can't afford it, don't buy it. If you did, get rid of it.
Interest just keeps building up and you cannot break the cycle.
I am all against credit cards as well, the way people see/use them. I have only one credit card (why need more?) and I use it ONLY if I have money towards the payment already in my bank account. So basically use it as if it was a debit card. I would not use any credit cards at all and only use my debit card if it wasn't for this financial system where you need to build "credit history". So I know it is this financial system and culture that encourages people to spend and get loans/mortgage to keep running but look what happened with the financial crisis... I sincerely hope people like Dave Ramsey (or whoever else is out there, I do not know) will help individuals to break through this cycle and change their spending habits...



answers from Kansas City on

Dave ramsey has some great ideas but they aren't set in stone to work for everyone the same way. The best thing that helps is setting yourself a time frame to get out of debt, set up a plan and stick to it. Just simply cutting out some extra spending that isn't necessary will do a lot for you. Starting out with your lowest balance is the easiest way to gain extra money to put on the next debt so yes you have the right idea of starting with the lowest one and paying it off, then taking that payment amount and putting on the next one along with your current payment and will notice them being chunked away pretty quickly.

As far as the car. If you really need 2 vehicles then just keep the one you have especially with it being upside down. It will take years to come up with paying cash for one so since you are stuck with that payment already just work on getting these debts paid off and plan to keep your current vehicles until they die. After you pay off these debts, set aside your current car payment amount to save towards your next vehicle so when one does go out you will have the money to pay cash for your next one. You will probably work on student loans and house payment after these 3 loans are paid off.

I have friends that are also working on the Dave Ramsey plan but they chose to keep their car payment and worked on their credit cards and cut out extra spending like eating out, shopping often, and activities that weren't necessary. They are now working on paying off their car payment and applying extra amounts to their mortgage as well.

We are currently working on paying off debt too and I will be happy once the credit cards are out of the way.



answers from New York on

He means [pay off loans and debt... live debt free... use credit cards but pay them off right away... have a loan.. pay it down.. quicker if possible. or pay off totally.. you can add 20. or 100. more a month to pay it down quicker.. this is what he means.. as for buying a car outright.. when you need a new one.. buy what you can afford don't take a loan.. if you need a loan.. pay it off faster..



answers from Kansas City on

I don't know exactly how the Dave Ramsey program works but it seems like the order you are paying off things in makes sense. About the car, my husband runs a car dealership and I can tell you that currently the majority of people who come to trade cars in are upside down in their cars, this doesn't make it right but just a fact of the current economy. Even though you are upside down you should think about how well your current car runs. If it is dependable it may be worth keeping. If you buy a car outright right now it may not be as dependable and you may end up spending several thousand in repairs. Just food for thought. Congratulations on taking the steps to become debt free!!



answers from New York on

That's right! My husband is a follower of Mr. Ramsey. While I don't always agree with his "hard line" philosophy, he makes a lot of really good recommendations, including eliminating the little debts first. Many times people get caught-up in the total amount and forget that if you pay off one little one, you are not paying interest on it aymore! You can then focus on the others.

That car loan seems like it's still pretty high. I would suggest paying-off the smaller debts first and then seeing if you can pay additional money towards the principal on your car loan to pay it off faster. Your bank may be willing to work with you to pay it off, especially if they also hold the mortgage on your house!



answers from Springfield on

JoAnn C, sure it might sound like a great idea to just let someone else "take over the payments" but if they can't get a loan...there is a reason. If they would default on your agreement with them to take over your payment it would come back to you, your name is on the orginal loan and it would be your credit that it effects not theirs. NEVER let someone take over a loan for the item and almost NEVER sign as a co-signer on a loan for someone else.

Dave is good. When I became a single mom after 25 years of marriage. I was stuck with 60,000 in debt a house to sell and two teenagers still at home. The dead beat dad was out of the child support.

The only debt I have after six years is my mortage payment. I put two kids through college and paid cash for my 06 Ford in 07 and still driving it. It will work, if you are dilligent to the process and the new way of thinking about money and life stlye.

Good luck

Good luck


answers from Jacksonville on

Yes, you are correct about the order. Pay off the smallest balance first, then incorporate what you were paying towards it into the monthly payments for the next debt on your list. In your case, Credit Card #2. When that is paid, add all of what you were paying towards it (credit card #1 AND credit card #2) towards the next item (the car). You continue to pay the minimum on everything except the smallest debt. Obviously, once the smallest debt is gone, the next one on the list becomes the smallest, and you pay extra until it is gone and move on down the list.

If you could get something to drive (a beater car) and be debt free on the car for $5,000 ($3-4,000 to get un-upside down, plus a grand for a beater car bought with cash) and your other debts totaled, say $8,000 (instead of the $1850) then I think you would get out from under the car first, and then use your "car payment" money to pay down the other debts (credit cards). But since it will cost you more cash up front to get out from under the car payment (minimum of $4,500 probably?), than it will to pay off the credit cards, I think you should get the credit cards paid off first. Then apply those monies towards the car until you get it down to something where you can sell it and buy something with cash.

(If you can get $7,000 for it, and get your loan balance on it down to $5,000... then sell it. And take the $2,000 you make on the sale to go buy a beater for CASH. NO LOAN). Then you will have income freed up (cash) every month to save for whatever your priority is. Whether it is more emergency fund (the 6 months variety, not baby step one of $1,000), a better car that you pay cash for up front, extra payments on the house to pay the mortgage off early, or to invest. His whole theory/plan is designed so that you have no PAYMENTS. To have payments, you have to have DEBT. And then you have no cash... it's all "spoken for" already when you get your paycheck each month.
Since your credit card debts are so small compared to the upside downness (?) of your car, then you should get the credit cards out of the way first. You'll just have to suffer through for a few more months (stupid tax is what Dave usually calls it, lol) until you get where you can act regarding the car.

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