I make about $70,000 a year, and I have $9,000 in student loan debt. I also have a car that would bring enough to allow me to pay off the student loans. Do you think I should sell?
Nice name! Seriously, there are two questions I ask when it comes to selling a car to pay off debt. One, is the value of your car and other vehicles – including motorcycles, boats and such – more than half of your yearly income? If so, then you have way too much money wrapped up in things that are going down in value. So, unless you’re talking about a super-expensive car, I’d say the answer on this one is no.
The second question is this: Can you become debt-free, except for your home, in 18–24 months without selling the car? If the answer is yes, then I wouldn’t sell the car. There’s no reason to sell your car in this scenario, unless you just really hate the thing or need different transportation.
In this case, it sounds like your car is a reasonable percentage of your income. I’d hold on to it and just save like crazy to kill off this student loan debt. With your income, it shouldn’t take more than a year. Good luck, Dave!
Paying the parents
I have $1,000 in credit card debt, a $12,000 car loan, and I owe my parents $20,000. The loan from my parents is causing stress because all I can afford to give them is $200 a month. They don’t need the money, but they’d like to see it paid off soon. What can I do?
If you’re not already living on a written, monthly budget, that should be the first step. You say your parents don’t need the money, right? So, they’re not living on bread and water without your payments. I think the biggest thing causing them stress is the fear that you’re being irresponsible and living without a plan.
Make out a simple, realistic budget, and sit down with them to explain what you’re doing and how you plan to address things. Start a debt snowball, and begin knocking out your debts, smallest to largest. By the time you pay off the credit cards and the car, you’ll be able to give them lots more than $200 a month.
Just ask mom and dad to stick with you a while longer. I think it will make them feel better to see that you’re serious about getting your finances in order!