Posted on 02/26/2013 2:31:01 AM PST by Kaslin
Dear Dave,
I’m 27 and married, and we have two kids. I make $90,000 a year, but we have $80,000 in consumer debt—$48,000 of which is in car loans. The rest is credit card debt. My wife’s parents have offered to let us move in with them so we can get out of debt faster. Do you think this is a good idea?
Kevin
Dear Kevin,
If I were in your situation, I would not move in with the in-laws. You’ve got an absurd amount of money wrapped up in those cars. I’d sell the stupid things, start living on a budget and paying down debt, and keep my dignity.
In my mind there are only two scenarios where you’d even consider taking the in-laws up on their offer. One is where they’re absolutely wonderful people and you have a great, non-toxic relationship with them, where everyone involved knows their boundaries. Even then, I’d only consider this if it were for a very short, agreed-upon amount of time.
The second scenario would be if moving in with the in-laws were the only way to accomplish your goal. And you don’t pass that test. You guys can get out of debt pretty quickly if you’ll just lose these ridiculous cars! Think about it. If you had two little paid-for beaters, your lives would be so much different. You could even save a little money on the side while you were paying down debt and buy a better car as soon as the debt was gone.
If you can’t tell, I’m pretty big on maintaining dignity. You might love your cars so much that you’re unwilling to make the sacrifice. Not me. The money going into your automobiles is insane, and that’s your biggest problem!
—Dave
Dear Dave,
What do you think about the HARP program, and what exactly is it?
Ivy
Dear Ivy,
The Home Affordable Refinance Program is designed for people who have made their payments on time but are underwater on their mortgages. Being “underwater” means they owe more on their homes than the homes are worth. So basically it gives them the opportunity to refinancetheir home loans.
The HARP program is the only part of the Clinton administration’s Making Home Affordable program that actually worked. And to be honest, it has worked well. In contrast, the recent Home Loan Modification program is a piece of junk and all about political posturing. About 93 percent of the people who applied for a home loan modification didn’t get one. It was just another case of the governmentpretending to do something.
I’d advise looking into the HARP program if you’ve got a good credit history and you’re underwater on your current home. Lots of HARP program applications are being approved, and the deals are closing. That’s what really matters when you find yourself in a situation like this.
—Dave
“Trouble with those two little paid-for beaters is that they require repairs at random intervals, that can be expensive. Sometimes you can ignore those repairs (most people don’t care about suspension repairs unless the car is unable to move), but dead alternators, transmissions, transaxle shafts, blown heater cores (very expensive to fix), tires, etc, can be expensive and random. At least with a payment, you have a set amount every month that you’re paying, a known quantity, so that you don’t have to come up $1,500 out of your pocket on a Tuesday afternoon.”
With cars like that the combined payments are going to be $800-900 every month. With savings like that one could afford a pair of new transaxle shafts every 3-4 months, a bi-annual valve job w/ tune up and new tires and a heater core once a year. Just put some money away for it. JMHO, but I drive junk, and I could pull $1500 out of my backside any day of the week.(because I don’t have a car payment)
Well ... there's that. We hardly ever drive more than 20 miles from home and within that radius, cell phone service is perfect. Whenever we drive across the continent to visit relatives, we rent a car.
Within these parameters, driving a beater is just fine.
First, when the world is starving, nobody is going to give you a loaf of bread for a gold coin.
Second, in 1934, you could buy a car for $405, and an ounce of gold was $35. A good pair of shoes cost you $3.
Today, an ounce of gold is $1600, and a car is $25,000. The shoes? $50.
Gold has gone up 45 times.
The car has gone up 65 times.
The shoes, only 15 times.
So, shoes are a bad investment. Except that, if you had a pair of shoes and an ounce of gold in 1933, and put both of them in a vault, the shoes would be much more valuable.
It is interesting that people always compare gold, a single commodity, to the entire stock market, or the entire world investment market. They prove that gold is an above-average investment.
But compare gold to a specific stock, and you’ll find lots of stocks that outperform gold over any particular time period, except maybe 2008-2011.
And the entire market has outperformed gold in the past two years, although that could be a momentary thing. Gold is good today with Italy’s problems.
And one of my cars is a “beater”, for just that purpose. :)
And one of my cars is a “beater”, for just that purpose. :)
“We’ll be trading it in for $500 or so on probably a Kia Rio or Ford Focus”
And when a deer hits that?
I respect Dave a lot..
****************************
I do too , but he is of the mind that this sinking ship just needs a fresh coat of paint ,,, his investment advice is stuck solidly in the past when the economy was vigorous... and the fact that he doesn’t understand the danger of the OUTRAGEOUS FORWARD P/E of this market while we’re stuck in neutral and sliding backward down the hill towards the very real cliff where we turn into 2007/2008 Zimbabwe ... The best anyone can do is save money (cash) ,, forget about debt (it’ll fix itself with 1000% monthly inflation) and gather REAL asetts. There might be a year or so left in the stock market ,,, Bernanke will make sure of that with his printing press ... or there might be a week ... There CERTAINLY won’t be a 10 year time horizon that Dave Ramsey predicates his investing advice upon. And like in Zimbabwe , that $100 investment may become “worth” $100 million but it won’t buy a dozen eggs... a single chicken would have been worth MUCH more.
Whenever someone says to me “My car payment...” I hear “I have a car I can’t afford”. They always think they can “afford” the payments until something goes wrong.
My sister drives a 2010 Ford Escape with a monthly payment and she works part time. She bought it to avoid a $1200 repair on her old car. That was 4 of her car payments. She has now become “payment poor” from all her monthly payments. Luckily she will soon be covered under Obamacare.
I have a 2003 Chevy Cavalier(paid $3k for it) with no car payment and I make 3X what she makes.
If someone is truly worried about the reliability of buying a beater, buy two of them. You still come out way ahead.
And when a deer hits that?
Actually, that one deer hit was a fluke. There was a steep wooded hill next to the road and about ten foot up there was a barbed wire fence with only a single wire at the bottom. Basically the big buck tripped over the wire and bounded down the hill into her car as it passed. In the 18 months we’ve been here we have not even had a close call since then, though we see lots of deer.
But yeah, deer are the one thing I watch out for as I’m bombing along the two lane roads at 80 mph.
You can get comprehensive on a beater as well.
The one thing I have found is that people buy cars they can’t afford(i.e. have to borrow to get one) because they feel they are entitled to them. Also, they feel the car payment insulates them from reliability issues.
People are funny like that.
The one thing I have found is that people buy cars they can’t afford(i.e. have to borrow to get one) because they feel they are entitled to them. Also, they feel the car payment insulates them from reliability issues.
People are funny like that.
And most people can’t fix their own cars.
The thing about cars is that, in a way, they are like houses. That is, there are three bedroom houses and then there are three bedroom houses. You can get a little 1,000 sq ft rambler or you can get a 4,000 sq foot palacial 3 bedroom place with hot tub, covered patio, etc.
My point: People can buy the quality of car they want (and quality DOES matter) but they should stay within their budget. But that’s just me. I’m driving the 300M to work now to burn through the last miles. Even though one side is terribly dented up, the transmission is throwing a fault code, and the AC doesn’t work, it has a beautiful wood and leather interior, drives awesome, is very quiet, and has gobs of power to allow me to pass the 10 or so cars I pass every day with ease.
But I know it’s gonna snap any day. And when it does, I just hope it’s in the hands of a car dealer and not me.
It may not snap depending on the fault code. Our Explorer threw a fault code and my wife panicked. She had a rebuilt transmission put in that failed on a trip. I tried to convince her to keep driving with the fault. If the transmission goes, you have to replace it anyway. You may as well wait until it does fail.
How much to fix the AC and pull the dents?
The fault code from the tranny is 700. It means “check the tranny computer for the “real” fault code. :-)
But it ran low on fluid and I think that tripped it. Oddly, it never reset, even after 50 cycles. We had the fourth gear band get too worn on our old Lebaron and the car went in to “limp in” mode. It drops to second gear. After I got it fixed I discovered I could have saved $1,500 and just always used “D3”. I could have treated it as if “overdrive” went out. And with the kind of driving it had become delegated to, that would have been fine. I may find myself doing the same thing with the 300 if I don’t get rid of it.
Regarding the side of the car. It wiped out every body panel It would be a few thousand. Regarding the AC, we actually spent $1,400 on it before we left Seattle. It lasted a few months and failed. Turns out the “radiator thingy” under the dash is leaking. Another $600. We’d have done it but then the deer hit.
When several high ticket items are about to go, it’s no longer practical to just keep it going. And it’s also partly based on my income. If I was making $10 an hour, I’d fix it. I’d wear a t-shirt and shorts during the summer drives and I’d pray the tranny holds up. But I’m not in that situation. :-)
Get a $50 ODB reader and reset the fault. If it comes back, you can get the next code checked at a mechanic. If you don’t want to spend the $50, pull the battery terminal. I have to do that with my Jeep.
Pulling dents is cheap. It won’t look as nice but you can limp along for a little while. Asking is free.
The radiator thingy is probably the heater core which doesn’t affect the AC. You have to get that fixed. In the future, if you spend $1400 on something, make sure they give you a warranty. Otherwise, don’t get it fixed there. My rebuilt transmission had a 6 month warranty and it failed within the 6 months. We got a new one for free.
“If I was making $10 an hour, “
I assume you are making more so paying cash for another car shouldn’t be a problem. :)
My point is that people (not you of course) get a car loan because they think they deserve a better car than they can afford. Then when hard times hit, they have an millstone around their neck.
Yep, and it can be hard to tell whether a used car was flooded in Sandy—or whatever.
Worst case, you can lease an economy car for a couple grand a year.
The radiator thingy is probably the heater core which doesn’t affect the AC.
I wasn’t very clear about that. I believe it is the “heat exchanger. It’s the AC’s equivalent of a heater core. I actually saw a couple of them at the AC guy’s place. He mentioned that they are a bit of a problem in the 300. We did dye tests and even though it leaked all the fluid in a day there was no dye in the engine compartment and only traces in the interior. But then, there should not be ANY in the interior. It’s $600 in labor because of the required removal of that nasty dash.
Regarding the code, yeah, I was thinking about just removing a battery lead, but if the sole reason is to kill the light, I don’t care. I’m just trying to use up the car until it gets hot. Then I’ll get a “new-used” car.
It’s also gonna need a new water pump and timing belt in another ten thousand miles or so. And at 122 miles a day that is not very far off. I believe this is one of those engines that a broken timing belt causes to place valves and pistons in the same time-space continuum. It might get noisy.
A broken timing belt can wipe out the motor but they last longer than they used to last. I’ve only replaced one and it had broken. I drive my cars over 150k miles.
A timing belt is $400 usually. Water pumps make noise before they go. They can also kill an engine but you’ll get a warning first. When you see the temps go up, it’s time. Check coolant levels frequently.
Water pumps are pretty easy to replace. Youtube can show you.
I used instructions from ALLPAR to replace the timing belt and water pump on mymid-90’s lebaron witha Mitsubishi V6. It was actually easier than I expected, thanks to the amazing instructions. I paid 900 to get them both replaced at about 95k and I had to take it back. It ran “odd” and the check engine light came on. They had put the belt on one of the cam shafts off by one tooth. ;-)
Anyway, it’s pushing 180k. Interestingly, it doesn’t lose any water, but when you part it, the coolant reservour gurgles a lot. I have no clue what that means.
It may be that someone is going to get a good deal on this car when I dump it.
I used to work on my cars; I had a friend who knew what he was doing, so I’d get it over to his place, and he’d supervise me.
But it was just so much work, even when he had most of the tools we needed, taking an hour to just get into where the stupid part was, it was so tedious.
So when I had enough money that I could rationalize paying someone else to do the work, I found a nice Christian guy and decided I was doing charity. Then I didn’t care how much it cost.
I actually do that a lot — if I find someone I really like, then I feel like whatever I’m charged, the money is going to a good place. This is also why I tend to become “members” at museums and zoos — I want to support them anyway, and then I don’t have to worry about cost when I drop in for an hour.
Now, I just buy new, and let the dealer do the work. And I get the full-coverage extended warranties. Of course, my two cars are both Prius. So they are complicated, and have expensive electronic parts. I’ve got my money’s worth out of the warranties. And I wouldn’t trust just anybody to work on them.
I’m looking to get a clunker now, and so I’ll be back to looking for some kind old man who likes to fix cars out of his garage.
I actually had such a guy long ago, and was sad when I saw his house was gone, a new development being put up on the land. So I guess he and his wife probably died.
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