I borrowed money from my retirement fund to pay off my car when it comes off lease. In the meantime, I've really run up my credit card. I can pay one or the other. (Each is about $14K) Common sense tells me to pay off the credit card because of the high interest. But if I pay off the car I won't have to finance the $14K via an auto loan.
What would you do? Any advice greatly appreciated.
Car loan rates: 1.75% to 3% (less through some credit unions, etc.)
Credit card rates: 10% to 20%
Don't lease cars.
Don't borrow from your retirement funds.
Pay off the car. Depending on you credit rating, the auto loan will have a MUCH lower interest rate then the credit card (which is probably around 20%). I recently bought a car and the rare offered me was 3.5%. This is really a no brainer...
Pay off the credit card, turn in your car at the end of the lease, and finance at 1.9% or less, or find another lease with 0% down.
[quote]Pay off the car.[...] This is really a no brainer...
As OP says he must carry finance charges either on a card on a credit card, how is it "a no brainer" to pay off the car when the interest rate on paying off the credit card is many times more?
OP should pay off the expense that represents the far greater drain on his wallet -- that being the credit card he carries inside it.
"Pay off the car. Depending on you credit rating, the auto loan will have a MUCH lower interest rate then the credit card (which is probably around 20%)."
As the auto loan has a MUCH lower interest rate than the credit card, as you correctly point out, why would you suggest paying off the car?
Pay off whatever costs you the most. This really is a no-brainer.
I think R2 maybe left of the "d" on Car(d).
Someone told me I should play around with different credit cards to get the lowest rate by transferring debt to low percentage rate cards. I have a good credit rating but I'm NOT good with finances and was thinking maybe I could pay off the card at the end of the year with a work bonus and partial no-interest loan from the folks.
Start living within your means, OP, or you'll have this same issue time and again.
Pay off your credit cards, you will sleep better. I had over 8 credit cards (all over $2,000) I owed. It took me quite a few years to pay all of them off, not counting the constant debt collectors calling me...which was a nightmare, because a company wanted to sue me! Last year, I payed my final credit card, which was $17,000!
Now, everything is paid off, and I'm able to sleep better and save money. Life is good now.
I learned my lesson the hard way.
Credit card, and quit buying things on it. If you can't pay cash, you can't afford it.
What r11 said.
Don't pay the car nor the card. Spend the money eating at the best restaurants, staying at luxury hotels and renting expensive rent boys. Then get on the car and drive off a cliff.
[quote]Credit card, and quit buying things on it. If you can't pay cash, you can't afford it.
My mother tried to drill that into me. Didn't take. I'm the poor guy in a group of friends who like to go places, eat out, do things. I get treated to thing often, but I pick up a check now and then ... it's only fair.
In the last month, I've paid for a TV for my ex who has no money and his broke ($600), the maintenance and transfer fee on a time-share I gave away ($1,000), the deposit for next year's house rental on the Outer Banks (with family - my share $1K, paid half,
I'm living about $14K above my annual salary, which about $90K. I need to earn a lot more than I need because I am a spendthrift. Plus, I live in an apt that only costs $1,000/mo, including all utilities, cable, etc. I should be in a better position.
This is the third year in a row I've run the card up to $12-15K. I get a gift each year of $10K but I don't think I'm getting it this year, so I have to choose.
Anyway, I'm going to pay the card and hope for the best. I'm a hopeless case. Get rid of the card debt is obviously the way to go.
When is your lease ending? Don't consider the car on the current buyout value, but on the residual value at end of lease.
Before you decide, check the current market value of your car against the residual and make sure it's worth keeping. It could be worth more (or less) than the residual value. If it's worth less than the residual, return it at the end of the lease and stick the car company with the difference; if more and in good condition, THEN think about buying it outright. You might even be able to resell it for a profit if it's in high demand on the current used car market!
R1 is right on - leasing is a terrible idea. Financing a lease buyout is generally not a good idea either, as you're paying interest twice on the same amount. (You've already paid interest on the residual value: the leasing formula is net capcost PLUS residual value times money factor.)
Multiply the money factor by 2400 to get the actual interest rate on any lease.
R15, my lease ends this November. I signed up for 36000 miles but the car has just passed 50,000 on the odometer. The car is in good shape except for excess mileage. I pay $15/mile over 36,000. Good car, and I'd like to keep it. I expect the car to have 55,000 when the lease is up. Can you explain a little more. I really appreciate it.
Sorry. I pay 15 cents per mile over 36,000.
Your ex could have gotten a TV at the pawnshop or done without; that's just the first thing that stuck out on the previous post. Did you investigate selling the timeshare and at least breaking even on what you spent to buy it?
Do keep in mind that paying off the credit card won't do a damn bit of good if you just run it back up again. If you do pay it off, commit to not spending any more on it than you can pay off in full at the end of the month.
Do you have a budget, OP? If not, make one ASAP.
Pay off the loan with the most interest first. Simple, then pay off the next highest and so on.
Leasing gets you in a car you probably could not afford. While you can buy it at the end - you end up paying more for the car than if you just financed it.
I refuse to put anything on my credit card that I cannot pay off at the end of the month. Why anyone pays all that interest to a credit card is beyond me.
Is this a three-year lease? 55k over three years is 18K/year, considered high-mileage in the sales market. Your residual value is probably already higher than the car will be worth because of those excess miles.
Look at online used car sales in your area and see what your car *with 55K miles* is selling for. You can also call your bank or credit union and ask them what they'd loan you on that car at that number of miles. Some insurance companies will also tell you exactly what your car is worth! If the residual value on your lease is higher than that, then buying your car is not such a great deal.
If you turn it at the end of the lease you will have to pay 2850. in excess mileage IF you come in at 55K miles. (Some lease buyouts will make you pay this too.) That's 1200 miles per month until November, OP - be sure you stick to that.
Is your credit in good shape? There are zero percent/cashback deals out there right now, or you could look at used cars and finance one through your bank or CREDIT UNION (if you're not in one, join one now.)
If you must have a new one (and I wouldn't) you might want to look at lease return programs with the same manufacturer. They sometimes cut special deals to retain customers, and in some cases they will waive excess miles and/or return fees. But whatever you do, DO NOT lease another car! Leasing is not a good deal for you.
R2 here. Yes, I meant to say to pay off the card. Sorry for the confusion...
Thanks R22. I appreciate the advice. I went to kbb.com and put in the car's details and it came back with a trade-in value of $11,985 and private party is $14,660. The car originally cost $24K (that was what the lease was based on) and I won't be leasing again. I did what you said and looked up cars on ebaymotors with the same mileage and they round out about $18-19K. When I leased, I was in a bind and had to get a car with AWD in a hurry. I don't need a new car and I think this one will last a long time.
I think I can keep the mileage down even though I drive back and forth to work 100 miles round trip. But I can take the train.
Re Credit Unions, do you think I should take my money out of Citibank (hate them) and put it into a credit union? I'm totally willing to do that.
Again, thanks for the advice...everyone.
OP - the Clueless Spender
where you money is matters little unless you are saving it and then you should be investing in money market or mutual funds to get better than the crappy .5 % anyone is paying.
With you credit cards - you can negotiate down the interest, call your current provider card with the highest balance and interest and tell them you have an offer from XXX (amex or mc or who ever - chase, citi, barclay) for 0% balance transfer for 12 months but that you don't want to leave your current card provider because they have been great to deal with blah blah blah. 9 times out of 10 (unless you are way behind on your payments) they will offer you that same deal - 0% on the current balance and 12 months to pay it off. If they do nothing - shop around for a real 0% balance transfer deal (check bankrate.com for cc offers or just google 0% balance transfer - I am sure a ton will come up). That gives you a year to pay off that balance and not rack up insane interest.
[quote] do you think I should take my money out of Citibank (hate them) and put it into a credit union?
R24/OP: Credit unions may offer much more advantageous rates -- for car loans, for credit card interest, and all the rest.
This is a credit union I used in the past. Its used car loans are at 1.74%; bill consolidation loans at 9.99% (and 4.9% balance transfer promotional rates); credit card interest rates are between 7.49% and 9.99%.
But regardless of whether these rates are are an improvement over your current card rates or prospective car loan rates, your biggest concern should be two-fold: reducing your debt and living within your means.
As for hating Citibank, I suspect that people with Citibank accounts well in the black rather than dipping down into the red have a more favorable view of the organization -- whatever its faults. Paying off your credit card balances in full every month, having money enough in the bank to avoid fees, to be a good credit risk... when you're in that situation it doesn't matter what the interest rates or penalties are, because you never incur them.
RE: R25's point, Bankrate.com is a decent starting point to see where you stand relative interest rates available from other card cards and lenders. Generally it's a good resource for financial questions, financial calculators, etc.
Get a job so you don't have to decide and pay cash for everything. Honestly, what do you people do,for a living?
I'd skip ebaymotors and check Autotrader instead. KBB private party is probably pretty solid.
I wouldn't close out my Citibank accounts completely just yet, especially if you've had them a long time (can affect credit rating.) Just join the credit union, move your direct deposit (you don't have to move all of it if you have draft payments at Citibank) and start transferring things over.
100 miles round trip to work and you signed a 12k/year lease? Oh dear OP, whatever will we do with you? Definitely start taking the train, because every mile you drive RIGHT NOW costs you fifteen cents in November, 15.00 per commute (plus gas and maintenance!)
What is your residual value, OP? Add 2850. for 55K excess miles to get the price to buy at end of lease. Then ask the credit union how much they'll loan you on your car with 55K miles and subtract that from the price to get the difference you'll have to come up with in cash. If you know you want to do that, I'd set that amount aside to use in November, put the rest on the credit card balance and start a budget immediately, working on paying down the rest of the card. Don't wipe out your entire savings in case you have to buy tires or something (NOT a new TV for your ex.)
lol who pays cash? Leverage credit cards. If you have decent credit and know how to cycle offers you can get amazing things for free. I just flew first class round trip for two to paris, 4 free nights in hotels and paid maybe 400 dollars for the whole trip. All because of credit card offers. Free airline mines, free hotel nights free points and travel credits - airline club access, free companion tickets...
Hell there was a time before all these balance transfer fees you could make an extra 2000 a year in interest but even now with new banks like bluebird popping up or using amazon payments you can cycle through the spending requirements and get hundreds of thousands of airline miles or hotel points or travel vouchers. You just need a little dedication and some book keeping skills to keep track of everything but free money is free money.
Oh, and what R26 said. Credit union is always the least expensive place to finance used cars, and often the least expensive to finance new ones. It's always cheaper than banks, who have to make profits for their shareholders.
OP, you say you think the car will last a long time. what kind of car is this? Is there a long-term warranty on it? Is it fuel-efficient? Can you drive it for several more years?
[quote]What is your residual value, OP? Add 2850. for 55K excess miles to get the price to buy at end of lease. Then ask the credit union how much they'll loan you on your car with 55K miles and subtract that from the price to get the difference you'll have to come up with in cash. If you know you want to do that, I'd set that amount aside to use in November, put the rest on the credit card balance and start a budget immediately, working on paying down the rest of the card.
Oh man, I'm sorry. It's like my mind turns off when it comes to financial details. If the residual value (trade in value at KBB?) is $12,000, and I add $2850 mileage charge for a total of $14850, I ask a bank how much they would loan me for a car with that mileage and subtract that from $14850 to get the amount I need to put aside for November to buy the car? I'm a little confused, even still. I like your idea of setting aside that amount and then paying off the credit card with the rest.
OP (Math Wiz)
[quote]If you have decent credit and know how to cycle offers you can get amazing things for free.
I do, but I don't know how to "cycle" anything other than a bike. I really am the most clueless $$ person (obviously). I went on Citibank and they said I'm eligible for 0.0% for a year or something and then it goes up to 15%, but I don't even understand how THAT works.
[quote]OP, you say you think the car will last a long time. what kind of car is this? Is there a long-term warranty on it? Is it fuel-efficient? Can you drive it for several more years.
It will. I checked it out before I got it. A 2011 Subaru Legacy Premium car. It's everything I need and I think it will go for a long time.
Now that primetime is over, OP; the residual value is listed on your lease agreement, not what's on KBB.
You might have to pay sales tax in some states, and some lease companies don't charge for excess miles if you do a lease end buyback. The leasing company will be able to tell you both those things. Is this a Chase lease? They can be really picky about wear and tear at lease end, and may charge you a disposition fee if you don't buy it yourself (that's on your lease agreement.)
The full formula to buy at lease end is residual value + excess mileage charges (if any) + sales tax (if any) + tag/title fee (to transfer title from the lease company to you.) If the lease end total is more than the lease company quoted you to buy it now, then I'd do that instead. Either way, subtract the amount your credit union will loan you on the car to come up with the cash you'll have to bring to the deal.
A Subaru Legacy with that many miles in good mechanical condition should be worth keeping if you can get it for less than the current private sale value. The factory warranty has ended, but I'd still buy it and drive it until the wheels fall off if the numbers work. Once you get your other spending under control you can start saving to replace it when the time comes.
I used to work in auto finance, and I can't say it enough: credit unions always beat banks on used vehicle loans, and both beat the dealer's rates.
R14 ( OP?) You really need to put the brakes on your spending. With your income and low rent, you should save hundreds each month, if not thousands.
Buy a Honda-like car with low (credit union or promo ) rate for 4-5 years. Keep said car 8-9 years. Save 6-9 year car note amount bank account or blue chip 401K stocks.
Maybe look into buying small condo and get tax write off for interest rate on loan - also with rates at ALL TIME low which will serve you for years to come and give you an equity position at some point in the future.
You have a high income and should save more for the future and still enjoy your young life.
P.S. r14, get a good accountant or visit a financial planner to get objective information on your spending habits in relation to your income. Ask him or her what you could do to be in better financial circumstances. You have a relative high income and spend to easily on friends and ex's. You are not a Rockefeller.
I know it is nice to treat someone, but not be a spendthrift.
You have to look at the interest rates. Pay off the one with the highest rate, paying only the minimum on your other bills. Then focus on the next bill using the interest rate as your focus.
Get rid of your car. Save money and buy a car outright, or ride public transportation.
sorry, too not to.
OP - I can't believe you make 90K and you're so stupid and helpless.
You piss me off. This is simple math and a little internet research.
If you don't learn this YOURSELF, you're doomed to be in the SAME FUCKING PLACE NEXT YEAR.
God I hate you and your stupid ass.
Pay off your credit cards OP.
Thanks R34. YES, it is a Chase loan. I think I do remember the price I'd pay from the lease agreement. I recall feeling like it was somewhat low, like $13K or something. I can add it all up now.
It's obvious I have to wipe out the credit card debt and hide the card somewhere. I talked over a budget with my friend today and he doesn't think I can do it. Eating out every day, breakfast lunch and dinner. That's gotta stop. I know it looks like I make a very decent salary but it's NYC and I have a fair amount of tax-free money taken out of my paycheck. My net income after everything is less than $50K. I know it's time I faced the music.
And I'm doing it. Appreciate all the good advice ... and the occasional snarky but funny comments!
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Always pay off higher interest cards and loans first. Put the maximum you can towards the highest interest rate you carry, and the minimum to everything else.
The only thing you don't factor in is a home mortgage, because of the interest write-off and equity you get from that.
A car might have *some* equity, but it's rare that you'll owe less on the car than it's worth resale.
So ALWAYS pay your cards off first, and if you have debt on multiple cards, ALWAYS pay as much as you can on the highest-interest card you carry.
If possible do balance transfers (sometimes you can get good "special rates" on balance transfers) from high-interest cards down to low interest cards.
This makes the debt you carry cheaper in the long run.
Once you pay off your cards completely, NEVER carry a balance month-to-month. ALWAYS pay it off in full every month. If you can't do that, then don't make the purchase...save up for it.
My 2011 vehicle is paid off, and my home will be paid off in a couple years.
I make less than OP.
Nobody's ever given me $10K in my life.
I max my IRA and employee retirement contributions yearly.
I donate about 10% of my income.