Negitve Equity Auto vs CC Debt

PoorLifeDecisions

Hey all,

I've made some terrible financial choices throughout my 20's and have only recently changed my ways from the "head in the sand" accounting method. I've analyzed and corrected my behaviours to avoid the same issues going forward, but I have one last problem to solve.

Here is my current situation:
I recently bought a brand new car that was way out of my means, gets horrible gas mileage, and costs a ton to insure.

Current Loan Balance: 36,000 @ 3.5%
Monthly payment: 635
Monthly Gas: 250
Monthly Insurance: 110
Car's current KBB trade in value: 31k-32k

The mileage on the car is currenlty 4500. It is a vehicle that holds its value extremely well, and the current KBB for the same vehicle, 2 years older, with 25,000 miles is 28K. I have just eaten most of the depreciation of the vehicle.


This alone is not an issue with my income. However, I have amassed a great amount (40k...Yes, I know, I'm an idiot) of high interest credit card debt. I have transferred what I can to 0% balance cards, but still have a sizeable amount to pay down at 15%+. Once I pay down the balance of a card, I usually receive 0% APR balance transfer offers, so I will continue to juggle those.


I've trimmed all fat out of my budget and every spare cent is going towards these debts. However, my current auto situation needs to change. I have looked through the local market for 4-6k cars and have not found anything that would be reliable enough to meet our needs. Plus that 4-6k cash expenditure could be put towards 15% debt.


I am looking to purchase a 2014-2015 base model Mazda 3 with 20-40k miles. These can be had locally for 10-13k. I have calculated my mileage savings and insurance savings and would save $170 a month alone in gas and insurance. My state does not tax the amount covered by a trade in so I would pay no tax on the transaction.


My question is whether I should continue paying my current car loan down until I break even (Or build equity) to trade in, or if I should roll the 4,000 negative equity into the used Mazda purchase. The downsides I see to keeping my current loan is that I lose $170 each month to insurance and gas.

The end result would be:
Loan Amt: 14,000-18,000 @ 4-5%
Gas: 110
Insurance: 75

I can afford all CC payments + a little extra each month regardless of what choice I make. I am unsure of which road to take to pay off the total debt sooner. My goal is to be debt free with a reliable car at the end of the day. By purchasing the Mazda I will be saving $500+ dollars a month that could be used towards my higher interest debt, but would be underwater for quite some time on the vehicle.

Also to note, my current vehicle is still under warranty for the next 5 years, 60,000 miles and has all maintenance included for the first 2 years. Despite it's bad fuel economy it will hold its value extremely well throughout it's life.

[Deleted User]

This is a UK site, we probably can't help with American problems sorry.

sourcrates

My ex wife gave me a 2004 Citroen Xara Picasso as part of our divorce settlement.

Costs me about £400 a year to run it, plus petrol.

Had it 5 years still starts first time, so far, never broken down.

$36,000 dollars you say, wow !!!

FatVonD

Could you lease a fairly basic car? You'd still obviously be making payments but you wouldn't be adding to debt and you wouldn't have to be worrying about an older car maybe being unreliable.

If you can get 32k for your car then I say go for it, it's depreciated whether you keep it or sell it so hanging onto it doesn't make it worth more.