*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.

 

[Willow Ufgood]

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.

You can't sell a car that you do not own in its entirety. You owe $19K on it. That doesn't change just because it's worth $10.5K. You have to pay it off first by refinancing with a personal loan in order to pay off the vehicle loan entirely. You could then sell the car for whatever you can get for it and apply the proceeds to the personal loan.

Dave would be 100% against this. Some would compare it to rearranging the deck chairs on the Titanic, although I don't think that your ship is sinking. However, part of Dave's philosophy is that taking out a loan in order to pay down a debt only makes you feel as if you have accomplished something when all you have done is move debt around.

One reason this is not a good idea is that people rarely take fees and taxes into consideration when they sell a vehicle. Depending on where you live, there can be sales tax and title transfer fees that eat away at that $10.5K. In addition, that $10.5K offer may ending up at quite a bit less based on the condition of the vehicle when the buyer inspects it.

For another thing, people rarely take that huge check and go right to the bank to apply it to their personal loan. They often use it to pay off other expenses or take vacations, etc. And suddenly that $10.5K becomes $7K. And you still owe the bank $12K after applying it to the loan. It's human nature, especially when you're struggling to make ends meet you you suddenly have this huge chunk of money.

Finally, how will you get to work if you only have one car amd your wife is using hers to get to work? Are you going to drive her to work in the opposite direction from where you work and then do the reverse thing when you're finished? I know that it's been suggested in the past but you didn't seem to be open to becoming a one car family.

I hope your post was just a knee jerk reaction to recent setbacks that you posted on the Debt Dumpers thread. Yes, I started reading that thread once it was pointed out on this thread that you were active there and had made tremendous strides in becoming debt free. You need to evaluate the total impact this kind of move would have on your financial journey. I believe that things can get better as you pay down your debts. It won't happen overnight and there will always be setbacks because that's life.

Dave's advice might not work for you. It isn't for everyone. His advice requires a lot of personal sacrifice. Every dollar has a name. Eating rice and beans, beans and rice. Selling everything until the kids think they're next. Living like no one else so that later you can live like no one else. The first 3 steps are the hardest but once you're past them, you are conditioned for success in the next 4. It's okay if his method doesn't work for you. The best method is the one you can live with AND gets you to where you want to be.

 

[ThereYouSeeHer]

September and October wrap-up!

--Do the expenses ever stop? We paid our 6-month car insurance (increased almost 10%), our annual homeowner's insurance (increased over 25%!), and another round of wisdom teeth removal (about $1500 out-of-pocket). Thankfully, that's the end of our non-monthly expenses until the new year. We also had costs related to a college visit and enrollment deposit, which means college expenses for our other child have officially begun. October was an extra paycheck month, so that helped ease the burden a bit.

--We were looking forward to open enrollment to make some changes, but then we saw the premium increases for certain items. The changes we were going to make would have taken an additional $200 a month out of our paychecks. That's not good, so we had to make some tough choices about what to cut and move around. We reduced it to an additional $60 a month taken out, which isn't great, but is better than $200.

--Starting this month, our goal is to finally create an annual expense fund. With all these increases, it's hard to continue cash-flowing the heaviest hitters like property tax, car insurance, homeowner's insurance, and life insurance. So, we are shifting money away from groceries and general monthly expenses to a fund for semi-annual and annual bills.

--We also decided to move any college savings into our HYSA. Previously, we just kept it in a savings account linked to our checking account for ease. The money never hung around long, so it didn't matter that it wasn't really earning anything. I originally didn't want to open another account or have it share our HYSA (which was for our dedicated emergency fund only). However, now that we are trying to save for two tuitions and doing so consistently, 1) we need every bit of help we can get from earning interest, and 2) since the money is accruing a little faster and hanging around a little longer, it will finally have time to earn interest. So, a shared HYSA it is!

--I have tried on and off for years to use EveryDollar, but it just never impressed me. However, with recent changes they made to the app, I decided to try again. Although it's still wonky for me, it is growing on me a bit. While I still love all my glorious spreadsheets on the computer, the app is nice to add purchases in real time when I am away from the house. And, more surprisingly, when I showed the app to the family, they thought it was cool (umm, what is not cool about spreadsheets?!). So, now whoever has the app can open it on the go and stay informed as to where we stand for the month.

November budget is set!

 

[barkley]

You can't sell a car that you do not own in its entirety. You owe $19K on it. That doesn't change just because it's worth $10.5K. You have to pay it off first by refinancing with a personal loan in order to pay off the vehicle loan entirely. You could then sell the car for whatever you can get for it and apply the proceeds to the personal loan.

Dave would be 100% against this. Some would compare it to rearranging the deck chairs on the Titanic, although I don't think that your ship is sinking. However, part of Dave's philosophy is that taking out a loan in order to pay down a debt only makes you feel as if you have accomplished something when all you have done is move debt around.

One reason this is not a good idea is that people rarely take fees and taxes into consideration when they sell a vehicle. Depending on where you live, there can be sales tax and title transfer fees that eat away at that $10.5K. In addition, that $10.5K offer may ending up at quite a bit less based on the condition of the vehicle when the buyer inspects it.

For another thing, people rarely take that huge check and go right to the bank to apply it to their personal loan. They often use it to pay off other expenses or take vacations, etc. And suddenly that $10.5K becomes $7K. And you still owe the bank $12K after applying it to the loan. It's human nature, especially when you're struggling to make ends meet you you suddenly have this huge chunk of money.

Finally, how will you get to work if you only have one car amd your wife is using hers to get to work? Are you going to drive her to work in the opposite direction from where you work and then do the reverse thing when you're finished? I know that it's been suggested in the past but you didn't seem to be open to becoming a one car family.

I hope your post was just a knee jerk reaction to recent setbacks that you posted on the Debt Dumpers thread. Yes, I started reading that thread once it was pointed out on this thread that you were active there and had made tremendous strides in becoming debt free. You need to evaluate the total impact this kind of move would have on your financial journey. I believe that things can get better as you pay down your debts. It won't happen overnight and there will always be setbacks because that's life.

Dave's advice might not work for you. It isn't for everyone. His advice requires a lot of personal sacrifice. Every dollar has a name. Eating rice and beans, beans and rice. Selling everything until the kids think they're next. Living like no one else so that later you can live like no one else. The first 3 steps are the hardest but once you're past them, you are conditioned for success in the next 4. It's okay if his method doesn't work for you. The best method is the one you can live with AND gets you to where you want to be.

I would be surprised if any lender (reputable/non predatory) would be willing to do a loan for far more than the vehicle's resale value. absent anything to secure a loan (car at/above value, home w/equity, savings as in when a loan is secured by the identical amount or more on deposit w/ the lender) is there anything even remotely offered like this?

--Starting this month, our goal is to finally create an annual expense fund. With all these increases, it's hard to continue cash-flowing the heaviest hitters like property tax, car insurance, homeowner's insurance, and life insurance. So, we are shifting money away from groceries and general monthly expenses to a fund for semi-annual and annual bills

you will be SO glad when you get this established. it took us a couple of years to get it entirely in place and like you it was tweaking the existing budget to start building on, then we added any extra funds that came our way (seriously-random rebate or funky class action checks, if a cost came in lower than anticipated/budgeted it all went in). in addition to tweaking the existing budget we bit the bullet and started monthly auto transferring into the designated account the 1/12th of our anticipated annual needs. it took over a year/18 months to get everything aligned but it's been much easier to deal with this stuff since. one thing we do so we don't (ideally) get hit with any upcost surprises is to keep track as we pay each expense to see what percentage the overall cost has increased year to year and then adjust up the monthly transfer amount begining in January of the following year (i'm waiting for a couple of my insurance policies and my bi-annual propane delivery this month to see how it fleshed out for 2025).

ours includes-

estimated tax installments-4x yr
property taxes-2x yr
auto insurance-2x yr
homeowners insurance-1x yr
umbrella insurance-1x yr
ATV insurance-1x yr
propane-2x yr
3 large system annual maintainace-1x yr
pest service-3x yr
yard/weed maintainance/abatement-about 5x yr
3 vehicle registrations-1x yr

in years past it also included things like our kid's private school tuition (we paid 2x per year to get a large discount) and the one week each did at summer camp.

 

[afan]

I would be surprised if any lender (reputable/non predatory) would be willing to do a loan for far more than the vehicle's resale value. absent anything to secure a loan (car at/above value, home w/equity, savings as in when a loan is secured by the identical amount or more on deposit w/ the lender) is there anything even remotely offered like this?





you will be SO glad when you get this established. it took us a couple of years to get it entirely in place and like you it was tweaking the existing budget to start building on, then we added any extra funds that came our way (seriously-random rebate or funky class action checks, if a cost came in lower than anticipated/budgeted it all went in). in addition to tweaking the existing budget we bit the bullet and started monthly auto transferring into the designated account the 1/12th of our anticipated annual needs. it took over a year/18 months to get everything aligned but it's been much easier to deal with this stuff since. one thing we do so we don't (ideally) get hit with any upcost surprises is to keep track as we pay each expense to see what percentage the overall cost has increased year to year and then adjust up the monthly transfer amount begining in January of the following year (i'm waiting for a couple of my insurance policies and my bi-annual propane delivery this month to see how it fleshed out for 2025).

ours includes-

estimated tax installments-4x yr
property taxes-2x yr
auto insurance-2x yr
homeowners insurance-1x yr
umbrella insurance-1x yr
ATV insurance-1x yr
propane-2x yr
3 large system annual maintainace-1x yr
pest service-3x yr
yard/weed maintainance/abatement-about 5x yr
3 vehicle registrations-1x yr

in years past it also included things like our kid's private school tuition (we paid 2x per year to get a large discount) and the one week each did at summer camp.

I'd at vet costs if you have pets. I decided last fall that I was tired of having to cash flow the annual vet visit along with their insurance. I know pet insurance can be controversial but I have doxies and they are known for back issues and it has been beneficial in the past.

I took what i'd been paying for the annual visits, yearly ins and their nail/gland appt and divided it all. I didn't really touch it for almost a year, partly because I forgot and partly because I didn't feel like I needed to. It grew well and I'm now making sure to use it.

I know I could do their nails myself, but it's not easy and not something I want to go back to doing. I googled about glands and I don't think the vet could hit a price point where I do that myself.

Vet prices have gone up though and I should adjust how much I'm saving each week a little.

 

[barkley]

I'd at vet costs if you have pets. I decided last fall that I was tired of having to cash flow the annual vet visit along with their insurance. I know pet insurance can be controversial but I have doxies and they are known for back issues and it has been beneficial in the past.

I took what i'd been paying for the annual visits, yearly ins and their nail/gland appt and divided it all. I didn't really touch it for almost a year, partly because I forgot and partly because I didn't feel like I needed to. It grew well and I'm now making sure to use it.

I know I could do their nails myself, but it's not easy and not something I want to go back to doing. I googled about glands and I don't think the vet could hit a price point where I do that myself.

Vet prices have gone up though and I should adjust how much I'm saving each week a little.

yup-we see our 'reserve' account as being for anything we can reasonably anticipate w/a scunch extra (and we let it roll over year to year just to have an extra buffer). I just remebered-we also include our Sirius subscription but if we had pet expenses I would budget it in as well (I have a family member w/ a Zootopia of pets and I can't fathom how much his quarterly chewey auto-shipments run but I would be bundling that in as well).

 

[ThereYouSeeHer]

You can't sell a car that you do not own in its entirety. You owe $19K on it. That doesn't change just because it's worth $10.5K. You have to pay it off first by refinancing with a personal loan in order to pay off the vehicle loan entirely. You could then sell the car for whatever you can get for it and apply the proceeds to the personal loan.

I would be surprised if any lender (reputable/non predatory) would be willing to do a loan for far more than the vehicle's resale value. absent anything to secure a loan (car at/above value, home w/equity, savings as in when a loan is secured by the identical amount or more on deposit w/ the lender) is there anything even remotely offered like this?

Underwater car loans is one of the few exceptions Dave makes in regards to debt. In this scenario, I believe someone would first get a firm offer to buy (ideally, speaking to someone in-person, so everything can be explained and provided in writing). A dealer would probably be more preferable than a private sale, since the dealer would generally handle the payoffs and paperwork (something like CarMax might be a good option).

Then, go to a reputable bank or credit union with the most favorable rates and secure a loan for at least the difference between the current loan balance and the offer that was presented. The new loan should be a little higher than the exact difference to cover any additional fees, taxes, or unexpected expenses.

Next, go sell the car to the dealer. At the time of the sale, I believe the dealer can receive a check from the seller for the difference in sale price and loan balance (one would have to verify whether that check can be a personal one or if it needs to be a certified check). All these logistics should be verified with the potential buyer first, in case their process is different.

How to Get Out of an Upside-Down Car Loan

A word of caution. Usually, the best path forward is just continuing to pay down debt, instead of moving things around. Getting yet another loan can add a layer of difficulty that might backfire (i.e., the sale doesn't go through at all, there are problems with the title, the sale price changes, there are more loan fees than anticipated, etc.).

 

[ThereYouSeeHer]

you will be SO glad when you get this established. it took us a couple of years to get it entirely in place and like you it was tweaking the existing budget to start building on, then we added any extra funds that came our way (seriously-random rebate or funky class action checks, if a cost came in lower than anticipated/budgeted it all went in).

Yeah, we've unsuccessfully attempted this before, but it's to the point where we really have to figure it out. It's going to hurt our monthly budget moving forward, but at least it will be a smaller and more consistent ouch, than the feast or famine we've been used to.

 

[Willow Ufgood]

I would be surprised if any lender (reputable/non predatory) would be willing to do a loan for far more than the vehicle's resale value. absent anything to secure a loan (car at/above value, home w/equity, savings as in when a loan is secured by the identical amount or more on deposit w/ the lender) is there anything even remotely offered like this?

That's why I specifically mentioned a personal loan, as opposed to a vehicle loan. Lenders don't care what you are using the cash from a personal loan for. They are unsecured in most cases, meaning that they do not require collateral. The terms can differ based on whether the borrower has a low credit score, no reliable work history or a high debt to credit ratio.