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We Have an Interest Only Car Loan and Other Debt We Want to Pay Off. – Becky

“Dear Steve,

Husband and I both work full-time & make a decent wage (approx $100,000). We owe $13000 on credit card, $33000 for car loan ( no interest-7 years), $16000 personal loan (used to max out RRSP tax deduction last yr), and $127000 for mortgage (25 yrs). We manage to pay all our expenses each month with a couple hundred dollars left over. We have approx $145000 in retirement savings, and my husband participates in a stock option plan for 8% pf his pay.

We want to pay off our credit card & personal loan ASAP & reduce our car loan drastically. We don’t want to be slaves to debt & want to start contributing regularly to our son’s education. We have about $13000 in a government-subsidized education plan so far (he’s now in grade 5). We also want to contribute more to our retirement.

Should we cash our current stock options (approx $21000 before tax) to apply to our debt? We currently pay about $500/mo. To credit card & $500 for car & $370 for personal loan. Mortgage is app. $950/mo. We bring home app. $5600/ mo – but that is before any expenses.

Becky”

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The Answer

Dear Becky,

It seems we need a longer view and not a plan to jump from one strategy to another.

I can’t speak about cashing out the stock options because I don’t know what company they are for and if there is a long term prospect they may be worth a significant amount of money. On the other hand, if you had some idea about what the tax consequences might be of the sale and you felt the current value was greater than future value, then it might be a good idea. I hate to be so non-committal on this but there is a huge information hole on the options.

I can see the danger looming on the car loan. Interest only? Yikes!

The fact you mentioned RRSP leads me to believe you are located in Canada. Frankly I’m not certain how a loan to maximize out your Registered Retirement Savings Plan helps you moving forward. Now you’ve got the loan.

Getting out of debt is a combination of increasing income, reducing expenses or a combination of the both. It looks like this is a good time for you two to decide if you want to work hard or make cuts. If you make cuts you can direct more of your available debt repayment dollars towards paying down the loans.

While the car loan is an interest only note and the rate might be low, that would get my primary attention. If you don’t get that significantly paid down before the end of the note the car will have a lien on it for a whole lot more than it’s worth and you won’t be able to sell it.

My vote would be for you to examine the free service available from ReadyForZero.com and use their online assistance to prioritize your debt and stick to an organized debt reduction plan. Once you look at the ReadyForZero.com website you’ll see what I’m talking about.

My hope is that you can find ways to make some cuts, free up some additional debt reduction money each month, and get digging your way out of this whole.

You can do it.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

We Have an Interest Only Car Loan and Other Debt We Want to Pay Off.   Becky
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Becky

    Thanks for your advice. Just to let you know – it is not an interest only car loan. it is an interest-free car loan. No interest.

    • http://GetOutOfDebt.org Steve Rhode

      Wow, I totally read that wrong. Okay, all the advice is the same except, use the ReadyForZero.com plan to pay down your debt fast. If you can make cuts to free up additional funds then add it to your debt repayment strategy. Once the credit card debt is gone, then concentrate on the car.

      But, remember to save money, even a little each month, as you dig your way out.

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