*The Dave Ramsey 'Baby Steps' Thread*

[WDW_fan_in_TX]

I'm not sure what amorazation means, but I will check it out. I'm thinking about refinancing or even getting rid of the car. I've already been offered $10,500 by 3-4 different dealers on KBB.

Punch your numbers into a calculator like this and see the amortization schedule:
https://www.bankrate.com/loans/auto-loans/auto-loan-calculator/

I find amortization schedules like that motivating because you can see the impact of a relatively small amount $215 which, if applied to principal, would cut a full month off your loan.

 

[ThereYouSeeHer]

I'm not sure what amorazation means, but I will check it out. I'm thinking about refinancing or even getting rid of the car. I've already been offered $10,500 by 3-4 different dealers on KBB.

An amortization schedule is just a table that shows you how each month's payment is being split between interest and principal. If you put in your original loan information, it will also show how much total interest you will pay over time. Using some rough numbers, here's an example:

 

[CoP Luv]

I'm not sure what amorazation means, but I will check it out. I'm thinking about refinancing or even getting rid of the car. I've already been offered $10,500 by 3-4 different dealers on KBB.

I'm doing some research on my car payments right now. I pay $505/month for a 2016 Ford Fusion. I originally got the car in November 2022 for $19,900, and I still owe $15,200 on it. In the last 3 months, I've made payments of $505. Of that total, over $285 has gone to interest while less than $215 have gone to actual principal. I can't find anywhere on the website to pay only principal. And I don't know why they don't put more to principal. How am I ever going to pay it down? I'm going to be paying interest for years at this rate. It looks like they'd put more toward principal so they could get rid of me. But anyway, it's frustrating.

I have paid 33 months on it. I owe 39 more months.

While it would be great to get out from under your high interest car loan, where would you come up with the additional money to pay it off once you sell it for $10,500? You would still need to pay an additional $5,000 - ish to pay off your loan.

Amortization in this instance means the process of paying down an assets' debt. An amortization calculator shows the total payment owed and which part of that payment goes to the principal and which part goes to the interest. It can also calculate and show you different scenarios if you make extra payments. You may have 39 months left, but once you get rid of your credit cards and put the extra $60/month toward your car (making the payment $565 each month), you can see that you may be able to pay it off early, and as a result pay less interest each month.

It is a company's best interest TO THEM of you to have high interest and not pay it off early. That's how they make money. So no, the car loan company would not love to get rid of you. They would rather you pay them interest (and not principal) each month. Interest is calculated based on your rate and is not some arbitrary number. Once the interest is paid to the loan company first, then anything left over goes to principal.

As far as your trip is concerned, and I know you have paid off the flights and room, do you have a line item in your budget for travel? Or are any expenses incurred just going to be a surprise?

 

[firefly_ris]

While it would be great to get out from under your high interest car loan, where would you come up with the additional money to pay it off once you sell it for $10,500? You would still need to pay an additional $5,000 - ish to pay off your loan.

He could take out a personal loan at a lower interest rate than the car loan which if I'm remembering right is very high. Then whatever the difference is that he is saving, throw at the credit cards and rebuild E-Fund. Deal with a single car with wife for a while then after the cards and car loan are paid off, get a $4000 older used sedan like an old Corolla or Civic that will last him 2-3 years while he continues building up funds. Not a perfect solution by any means but could free up some cash each month and remove an underwater debt on a depreciating asset while the car is still worth at least something.

 

[Turn the Page]

It sounds like the Baby Steps would be perfect for your situation!

Hopefully, you were able to use the $6000 as a down payment for the car or to pay down other debts. What a great snowball starter!

Also, don't worry about the mortgage yet (that's years down the road after eliminating debt, getting a full emergency fund, investing, and saving for college). Even when you would reach Baby Step 6, remember it's not choosing between investing or paying down the mortgage, it's both! So you would still be able to have 15% of your gross income pulling those great returns, and then some other amount would start snowballing your mortgage. The good news is, with a lower interest rate, a greater portion of your extra payments would go towards mortgage principal instead of interest (and work that much harder for you)!

Well yes, we knew the old car was getting close so we had been saving a down payment for the new car. I stated that we weren't worried about paying off the mortgage just yet. And we already have 16% or so going into investment accounts.

We are doing the baby steps out of order.

 

[Starport Seven-Five]

Well yes, we knew the old car was getting close so we had been saving a down payment for the new car. I stated that we weren't worried about paying off the mortgage just yet. And we already have 16% or so going into investment accounts.

We are doing the baby steps out of order.

Is this based on projections or how did you arrive at 16%?

One thing I disagree with from Dave is his blanket "15%" recommendation for retirement. If you're starting young you will be fine with that but if starting later you probably need to contribute more.

 

[barkley]

I subscribe to some of Dave's advice but not all.

For example, we did purchase a brand new car two years ago (love my Subaru Outback). Our mechanic (also my brother) told us we would have to put about $6000 into our old car to get it through the winter.

Do I love having a car payment? Nope, sure don't. But I also do not see the purpose in putting $6000 into a beater to get it through the winter when that same $6000 could go to interest on a new, more reliable, safer vehicle.

I recently added up all the interest charges we are paying monthly and was sick to my stomach. Some are avoidable like the credit card balance (that we are attacking hardcore) and the car payment (which is next on the list to attack). Well, the car payment can be reduced anyway, I'm not sure it is entirely unavoidable at this point.

However, we have a 15 year fixed rate mortgage at 3.4%. Our investment accounts are pulling triple that. I no longer believe it is smarter to pay off the mortgage faster rather than investing that money in higher yield accounts.

ETA: We are mostly attacking the credit card balance. I am putting a brief pause on it this month as we have an appointment with an attorney for estate planning. I have some cash set aside for that and anything left over will be put toward the remaining credit card.

I get it. we had to buy a new car last and I hate having debt but the interest rate we were offered was lower than what we were getting on the funds we would have paid outright for it. now those rates are dropping so we decided just tonight to pay it off next week. if hate having any type of debt BUT if i'm able to make a net profit by having a loan at a lower interest rate than i'm earning i'll take that net profit.

 

[Turn the Page]

Is this based on projections or how did you arrive at 16%?

One thing I disagree with from Dave is his blanket "15%" recommendation for retirement. If you're starting young you will be fine with that but if starting later you probably need to contribute more.

Ummm.....DH's company puts in 3% initially then matches up to 5% and we put in an total of 8%. That's the 5% the company matches plus another 3%.

That's how we arrived at 16.

 

[Starport Seven-Five]

Ummm.....DH's company puts in 3% initially then matches up to 5% and we put in an total of 8%. That's the 5% the company matches plus another 3%.

That's how we arrived at 16.

I meant how did you decide 16% was enough to save?

 

[Turn the Page]

"Enough" is a strong word. We started out with enough to get the company match. As we get things paid off, get raises and such we increase the amount. We are still 25 years away from retirement so we have time to increase our contributions and let the magic of compounding interest work to our advantage.

We also work with a financial advisor who guides us on such things.

ETA: we currently have about 3 years salary in our investment accounts so we aren't ready to retire yet but have a good start on it. But the 25 years until retirement and all that interest is why I am leaving the money there rather than pulling it out to pay off the credit card 6 months early.