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 it 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.
My sister’s fiancé will be bringing a lot of debt into their marriage. He has several credit cards that are all maxed out, a $30,000 mortgage and lots of medical bills. She’s quit college to work full-time and help him pay it all off. Is this a good idea?
This is a very bad idea. Those bills will become her joint responsibility soon enough — like AFTER they’re married and not one second sooner. I mean, what if something bad happens and they break up?
Once you get married, there’s no “yours” and “mine” anymore. It’s all OURS, and that’s when you should pay everything together. Marrying someone who is in debt is okay, too. But you need to make sure the habits that caused the debt have been broken, and that you’re both in complete agreement from that point on about how the money will be handled.
Your sister’s biggest responsibilities right now are making sure she really loves this guy, and that they’re in agreement on financial issues before taking the trip to the altar. I’ve seen too many people come into our offices for counseling who were broke because they paid the bills for someone who left them before the big day.
NEVER pay your fiancé’s bills before you get married.
What are your views about having life insurance on small children?
I think it’s a total waste of money. The only exception may be a small rider on your term insurance policy — just enough to take care of a child’s funeral expenses — in the event that something awful happened. I did that for years, just a little $15,000 rider, before I decided to self-insure on that issue.
Life insurance policies should never be used for things that this situation represents. Number one, they should never be used as an investment. They’re garbage as investment vehicles.
The second reason most people buy life insurance on kids is because they’re scared the child may get really sick later on and become uninsurable. The likelihood of that happening is almost zero. That’s why it’s so inexpensive.
The only people with a real need for life insurance are those who have others depending on them for their livelihood. These folks should carry about 10 times their annual income on a good, 20-year level term life insurance policy.
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