Should I make extra payments on Rule of 78s car loan?

Dear Dave,

I am trying to attack my debt and pay it all off. I have a car financed with GMAC and want to pay it off early. I’ve paid 36 months and I’ve got 36 months to go. I want to pay extra so that I can get this out of the way and could probably pay another $100-$200 per month. I heard that I am under the Rule of 78s. What does that mean? Does it even make sense for me to make extra payments?


Newark, N.J.

Dear Ann,

Normally, it is very smart to pay off a car loan as quickly as you can. Loans just stink! However, if you are under the Rule of 78s, it’s not the wisest choice. The Rule of 78s is a methodology for calculating a prepayment penalty that, basically, kicks you in the butt. It’s the way the finance office at a car dealership calculates the pay off.

Call the company and ask them if you are under the Rule of 78s and if there is a pre-payment penalty. If you are, don’t pay extra until you have saved enough to pay the entire thing off. If you are not under the Rule, then go ahead and put down that extra money each month and get that loan out of your life.


How do you rebuild after bankruptcy?

Dear Dave,

My husband and I have been married for two years. Because of some poor decisions that he made and several jobs that he has gone through, we ended up with a lot of debt and eventually had to file Chapter 13 bankruptcy. Since then, he is working 70-hours a week at two jobs, and I am working 40 hours at an accounting office. We want to put this bankruptcy behind us and move on with our lives. How do we rebuild our lives after this bankruptcy? Thanks for your help.


Rochester, N.Y.

Dear Kim,

Where do you go from here? There are two things you need to need to guard against right now. First is that you are having financial problems, and financial problems are hard on a marriage. Number two is the fact that financial problems are really hard on a young married couple. You guys have only been married for two years, so you qualify for both. You haven’t have years of experience with trusting and respecting each other.

I would first suggest that you make sure you are in a good church, and that you get a spiritual viewpoint on marriage and on this overall issue. Marriage counseling would be my second suggestion. Not that you are guys are in major trouble or anything, but a good marriage checkup is a good idea for every couple now and again.

Another thing I would tell you is that men are task-oriented beings and women are more relationship and security-oriented. Knowing that, it is important for you as the lady in the relationship to realize that he has taken some self-esteem hits that are unbelievable. When you add job mess to the list of financial mess, he probably doesn’t feel like your knight in shining armor right now. He is probably a little sensitive about his competence. Just keep that in mind. Ladies are security-oriented so he needs to give you a since of security every day. He needs to give you about four or five extra hugs each day to reassure you that you guys are going to work through this together and move on.

If you keep this stuff together, the financial things will follow. But if you are constantly at each other’s throats because you are scared, you won’t make it through this tough time very easily. If you guys work hard and make a commitment to buckle down, pay off your debts as soon as possible, and never borrow money again, you will come out on the other side of this in better shape financially and in your marriage than ever before.



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