The payments on our new car are $336 a month over four and a half years, and we still owe a total of $12,000. We've cleaned up our other debts, so the car is the only thing hanging over our heads. We've also managed to put $10,000 away into savings. Should we pay off the car early, sell it or what?
It sounds like you've discovered that it's virtually impossible to build wealth with stuff like car payments hanging around your neck. Congratulations on that and on putting a nice chunk of money into savings!
When you're serious about getting out of debt, my rule of thumb is to sell anything you can't pay off in 18 months or less. With a balance of $12,000 still owed on the car, that means you'd have to write a check for about $700 a month to pay it off in that amount of time. If you can afford it without going hungry, that's one way.
Selling the car is an option, too, but don't go to a dealer for this. Lots of times selling a car is as easy as putting a sign in the windshield or taking out an ad in the local paper. Chances are you'll come away with a lot more money in your pocket this way, too.
Once you get the car sold, pay if off quickly. Then use about $3,000 from your savings to buy a dependable, used car. You'll be out of debt, and you'll still have the bulk of your savings in place.
Plus, you'll have the income available to refuel that savings account in a hurry!
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