| |
|
|
|
|
| The Basics | Don't let car debt sink you after a layoff
|
Losing that paycheck makes new-car payments a struggle. It's wise to sell the car and pay off the loan, but skip the dealer trade-ins. You'll do better selling it yourself.
By Liz Pulliam Weston
Americans are staggering under record levels of debt -- and its apparent in the type of questions that have been flooding in recently. This column deals entirely with debt and debt-related problems.
Question: A year ago, I purchased a 2002 vehicle while I was gainfully employed. I purchased this vehicle purely on vanity (i.e. it looked swell) and paid the full sticker price of approximately $18,000. Three months later I was laid off from my job. I spent three months on unemployment and have worked only part time since July. I have not missed a payment so far, but I doubt that I can keep the current pace based on the other bills I owe. So far I've tried twice to trade the vehicle in for another one, but the trade-in offers Ive been given are about $4,000 less than the current balance I owe. What do you suggest I do? Id really rather not allow the car to be repossessed.
Answer: First of all, good for you for not burying your head in the sand. Many consumers wait too long to deal with burdensome car payments, perhaps not realizing that a car can get repossessed if theyre even a day late with a payment. Since repossession trashes your credit report, its smart to want to avoid that outcome if at all possible.
Go back to your original lender and explain the situation. Some lenders are willing to temporarily lower your payments, although youll wind up paying more interest in the long run.
If your lender is not willing to modify your loan, your next best bet may be trying to sell the car yourself. Youll probably be able to get more for your car than dealers would be willing to give you as a trade-in value, although it still may not be enough to pay off your loan. You may need to come up with money from another source -- a parent, a credit card, the sale of an asset -- to pay the rest of what you owe.
Then you can set about the task of finding more affordable wheels -- something used but reliable. As long as your credit rating is intact and you have income from your part-time job that exceeds your other bills, you should be able to get a loan. Your car may not be as "swell," but it will get you where you need to go.
Q: I am renting a house out to people who declared bankruptcy two years ago this past August. They have an option to buy the home until May 2004. Are they likely to be able to get a mortgage? As far as I know, they have been paying their bills on time since the bankruptcy except for one or two late payments and some back taxes.
A: Lets turn the question around. Would you be willing to give these people money?
Theyve bungled their finances badly enough to wind up in bankruptcy court once, and fairly recently at that. Theyre still not paying their bills on time, all the time -- which is a requirement to have decent credit. They owe the IRS, which is pretty much the last creditor on earth youd want to have.
Its true that many people who have declared bankruptcy can get a home loan within two years, but they generally have to get their financial act in gear. Late payments or tax problems on top of a bankruptcy will make it tough for them to get a home loan with any kind of reasonable rate.
Q: I have always been a careful spender, but I was married to someone who had to spend every dime we had coming into the household. We got a second mortgage on our home to pay the bills, but wound up losing the house when we couldnt pay the loan. We eventually filed for bankruptcy and divorce. That was five years ago, and Ive since been able to qualify for another home loan with a good-sized down payment. (If you don't turn around and rack up a lot of new debt, it is amazing how much you can save.) I also have a credit card with an $1,800 limit and a 16% annual rate. This was originally a secured card that limited my purchases to an amount I had deposited with the credit-card company, but its since been upgraded to a regular, unsecured card. I would like to get another card in case of an emergency, but I want better terms than Im being offered. When can I reasonably expect to qualify for a credit card with decent terms? Five years is long enough to be paying your dues.
A. Not quite. Legally, your bankruptcy can remain on your credit report for 10 years, and many mainstream lenders wont be interested in you as long as that huge black mark stays on your file.
It may seem strange that its easier to get a mortgage after bankruptcy than it is a low-rate credit card. But think about it: if you fail to pay your mortgage, your lender can take back the house. Screw up on your credit cards, and your lender has little recourse against you other than nasty phone calls.
If you insist on getting another card, youll probably have to accept one with a relatively high interest rate and annual fee. A better course might be to simply keep using the one you have, paying it off in full every month, and waiting for your credit score to improve over time. If you keep applying for cards and getting rejected, you run the risk of lowering your credit score.
|
|
|
|
|
|
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
|
|
