Dear Dave,

The payments on our new car are $336 a month over four- and-a-half years, and we still owe a total of $12,000. We’ve cleaned up our other debts, so the car is the only thing hanging over our heads. We’ve also managed to put $10,000 away into savings. Should we pay off the car early, sell it, or what?

Alicia

Dear Alicia,

It sounds like you’ve discovered that it’s virtually impossible to build wealth with stuff like car payments hanging around your neck. Congratulations on that and on putting a nice chunk of money into savings!

When you’re serious about getting out of debt, my rule of thumb is to sell anything you can’t pay off in 18 months or less. With a balance of $12,000 still owed on the car, that means you’d have to write a check for about $700 a month to pay it off in that amount of time. If you can afford it without going hungry, that’s one way.

Selling the car is an option, too, but don’t go to a dealer for this. Lots of times selling a car is as easy as putting a sign in the windshield or taking out an ad in the local paper. Chances are you’ll come away with a lot more money in your pocket this way, too.

Once you get the car sold, pay if off quickly. Then use about $3,000 from your savings to buy a dependable, used car. You’ll be out of debt, and you’ll still have the bulk of your savings in place.

Plus, you’ll have the income available to refuel that savings account in a hurry!
- Dave

Dear Dave,

My sister’s fiancé will be bringing a lot of debt into their marriage. He has several credit cards that are all maxed out, a $30,000 mortgage and lots of medical bills. She’s quit college to work full-time and help him pay it all off. Is this a good idea?

Heather

Dear Heather,

This is a very bad idea. Those bills will become her joint responsibility soon enough – like AFTER they’re married and not one second sooner. I mean, what if something bad happens and they break up?

Once you get married, there’s no “yours” and “mine” anymore. It’s all OURS, and that’s when you should pay everything together. Marrying someone who is in debt is okay, too. But you need to make sure the habits which caused the debt have been broken, and that you’re both in complete agreement from that point on about how the money will be handled.

Your sister’s biggest responsibilities right now are making sure she really loves this guy, and that they’re in agreement on financial issues before taking the trip to the altar. I’ve seen too many people come into our offices for counseling who were broke because they paid the bills for someone who left them before the big day.

NEVER pay your fiancé’s bills before you get married!
- Dave

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