Diving Deeper Into My Debt – Part 3: Auto & Student Loans

Day 5| Paid: $0 | Remaining Debt: $63,117.27

We are almost all the way through the exploration of my debt. Today I want to look closer at the auto loan and the student loans. Then tomorrow we will look at the payday and installment loans.

Auto Loan: While the majority of this loan is actually low on my priority list I did fall 1 month behind in payments, so catching up and getting back on time is a high priority. This loan originated in October 2019 when my old car was falling apart. You see, two years prior to that I had brought that old car in for an oil change at a quick lube joint. I am not sure what they did…but the following day my engine burnt out. I don’t know if they failed to put in oil, or didn’t put in the filter or drain cap properly, or what. All I know is that my engine was toast. So I had to get a new engine. Well, a new used engine. But from that day forward the car never worked right. It had turned into a lemon. The heat stopped working, and three different mechanics couldn’t figure out why. The gas mileage tanked. The transmission started to go. It was awful. But I was in debt, underwater on the loan for that car, and couldn’t afford not to have a car. Fortunately my father is very generous, he hated seeing me drive around in that unsafe vehicle, and graciously agreed to put up the money for a down payment on a new car as well as co-sign the loan. So we did that and I walked away with a gently used 2016 Jeep Cherokee, and my old auto loan was rolled into this one. So I walked off the lot owing more than the Jeep was worth, but ultimately in a better position overall. Then a year ago I refinanced that auto loan with my current bank, got the interest rate dropped down to 7.05%, and was able to remove my father as a co-signer. The whole process sucked, and I recognize I am extremely fortunate and grateful to have my father willing to step in and help me out the way he did. Ultimately I am in a good place with the vehicle. Despite starting out underwater on the loan due to my old car loan, right now the blue book value of my Jeep and the balance on my current loan are about even. I know this is partly due to the situation with used cards currently, and that once the car market stabilizes it will again be less than the loan. But overall I am in a good spot. I have a current balance of $19,279.80 with an interest rate of 7.05 and a minimum monthly payment of $389.08. I fell behind because I just honestly forgot about the payment last month. Stupid mistake on my part, and even though the auto loan is not an incredibly high priority getting back on time with the loan is. It is not as high a priority as the other loans, so I may get back on track by simply paying a little extra each month rather than do a full lump sum to catch up. We will see, but either way I need to get back to fully on time payments with this. Otherwise my plan is to pay off the other loans, then the credit cards, and then tackle the auto loan.

Student Loans: I have two student loans, but at 6.8% interest rate, with a total current balance of $27,074.86 and a monthly payment of $318.63. Over the years I have deferred these, gone on interest-only repayment plans, gone on forbearance when I was unemployed, etc… These should have been paid off long ago, but they are still around haunting me. On top of that due to my own stupidity and focusing in other things I am now 6 months behind on these payments. If I go further than 6 months I will default on the loans, and unfortunately I do not currently qualify for deferment or forbearance due to the nature of my loans, even with the provisions in place with COVID-19. Believe me I have tried. So for now I just have to suck it up, get current with the loans, and then pay them down.

Other than getting current with both the auto loan and the student loans I do not feel that these are urgent debts to pay off, due to their fairly low interest rates. They are obviously important to pay off, as I truly have come to believe that Debt = Emergency. However, compared to the loans we will discuss tomorrow, despite the high balances of the auto and student loans, the reality is they are manageable. Getting on time is important, but otherwise I think I need to plan on only paying the minimums.

I knew from the start that it would be basically impossible to pay off 100% of my debt over the next 12 months, especially with a total balance that is almost double my net income. While I haven’t made any final decisions yet right now I am leaning towards putting together a goal of paying all of my debt with the exception of the Auto Loan and Student Loans. Of course I would get current with them and continue to pay the minimums, so the balance owed would continue to drop throughout the year. But I think if December 31st comes around and the only debts I have left are these two loans I can feel pretty damn good about myself. That would still mean paying off $17,012.42 plus whatever interest accrues, and with a base income of $37,024 that will not be a walk in the park.

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