After reading TylerFromNE's diary yesterday, I'm rethinking my strategy for dealing with debt. Other than the fact that (when possible) I'm a compulsive bill-payer, I'm decidedly not a member of the "investor class."
I'm going to toss out in some detail my own situation, in hopes of prompting a discussion about what folks are going to do with their auto loans. I'd be willing to bet I'm not the only one in this boat, and I really want to hear from folks what the best approach is, given the way things are now and what's likely to unfold over the coming few years. (And if somebody here understands both financial planning AND has a sense of how tried-and-true strategies might NOT be the course to take now could advise, I will send your way all the cyber-blessings I can possibly muster, and then some.)
Join me below the fold for my piece (apologies for the length, but I'm trying to be thorough) and, please, let's discuss amongst ourselves what our best positioning strategies are now. How can we use what little money we have not only to stay stable but, hopefully, force the kind of changes we need to happen in the marketplace?
Our situation is this: My "DH" (actually, we divorced 15 years ago--a long and winding story) has a good IT job that pays pretty well but could disappear overnight. He also is carrying (at least as far as I know) about $5,000 worth of unsecured debt and a very steep household expense load (we are renters). We both are at the age when our bodies and teeth are becoming very expensive. Our finances are separate--I don't think he wants me to know--and he covers everything except the following.
I am on fixed disability income, at least half of which is dedicated to paying our co-signed truck note of $509.11/month. The truck, a base-level single-cab short-bed white "fleet" model 2007 Toyota Tacoma, 27mpg, is our only vehicle. We traded another car with negative equity on the truck and, as a result, wound up with a 75-month auto loan, $25,738 at 13.3%. (I bankrupted over medical bills and disability in 2000; Robert bankrupted over an outsourced job and no work/unemployment in 2003, losing a house, so we figured we couldn't argue with the interest rate.)
After purchase, there was some loan switcheroo stuff going on and we wound up financed by a different company from the first one we signed papers with; it took forever to get that worked out so we could get insurance on the truck. Yep, the new lender tacked on an additional fee, too. Also, inexplicably, the tire on our other car had gone flat in the dealer's parking lot while we were negotiating the loan, so when we were leaving (deciding NOT to buy the truck), there was pressure to go on and sign on the loan so we didn't have to deal with the flat. (I'd be willing to bet money somebody at the car dealership let the air out of that tire.)
Know what we were told at the time of purchase--because we knew the deal was going to kill us? "You can go with this loan now and, after you've paid on it for a few months and your credit improves, you can refinance at a lower rate." I strongly suspect we were royally had, in the way those who bought into sub-prime mortgages that were subsequently securitized were had. They, too, were told "You can refinance later," but the bank tacked on penalties in the fine print for doing just that. When we tried to refinance six months later, we couldn't.
So, here we are: Me, disabled at 57, on low fixed income, unable to work, and DH pushing 61, that really terrible time in a worker's life.... I'm just trying to throw as much of my money each month as I can toward getting us in a better place so DH does not have so much weighting him down. He's literally killing himself with work.
My strategy has been to throw every extra dime I can get my hands on toward the principal, paying online. Then I found out the extra wasn't going toward the principal, just paying the note ahead, even though the loan is supposed to be a simple-interest loan. They said I had to MAIL in a check with instructions to apply it to the principal. (This is Wachovia Dealer Services, btw.) But when I did do that, they conveniently "never received it" although they clearly ran the check through my bank. Then I had to essentially spend three days on the telephone between them and my bank and fax and re-fax a bunch of crap to them to get it credited. It was almost more work than I was capable of doing. So I said to myself, these people are running a real racket here. Watch out. (And I have this uneasy feeling that, when we pay the thing off, we're going to have to fight tooth and nail to get the title.)
So, anyway, I'm now confused about what my strategy with this truck should be. When a viable affordable alternative (electric) becomes available at a reasonable price, we're going to want to trade in the truck. And if that time doesn't come before the bottom falls completely out, we do know we've got to have a vehicle and we'd rather pay this one off early to save on the interest. (When I make the 21st payment in February, the principal will be down to $17,412, about $6,000 or so more than it's worth. If I were to keep sending an extra few hundred every month (by check in the mail), I'd have it paid off in 30 more payments. If I don't send extra, it'll take 40. Right about the time DH retires, if he makes it to full retirement age, on just Social Security.
Sometimes I sit here and think "I should stop paying on this truck and let them come get it." They couldn't get blood out of this turnip (me), but they could try to get it out of DH if we stopped paying on it. I know how these things work: They'd sell it for nothing and hold us to making up the difference. I think "I need to be hanging onto every single dime I can, because there's no advantage to paying this off early if we're going to trade it or wind up losing it anyway, and we're going to need that cash." Like I said, I'm clearly not a member of the "investor class."
What would YOU do in our situation? What are you doing in yours?