Maybe I should host a rally at the National Mall...

Okay, not really, but I do get fired up about this stuff, and the New Year is upon us.  What a great time to get educated and make some changes!

Merry Christmas and Happy New Year! 

Wow, what a busy time of year.  I hope you were able to find the joy in the season amongst all the stresses.  If you've been following along in this blog the last few weeks, you know I'm wrapping up a three part series around debt management.  I will also admit that writing this is new to me and I'm learning on the fly.  A couple of things have become apparent to me.  First, I had intended on providing commentary around student loans in my last post.  I forgot.  I will include those thoughts in this post.  Second, it's clear to me I did not spend adequate time around mortgage debt management.  There are many other aspects of managing your mortgage that I just couldn't fit in the last post.  I will definitely come back to mortgages, likely many times, in the weeks ahead. 

Now, down to business.  I want to dive into "other" loans which can include personal loans and any sort of title based loan (car, ATV, snowmobile, RV, camper, etc.).  I want to be clear up front about something very important.  I don't advocate taking out any of these types of loans.  I think they should be avoided at all costs.  BUT, I recognize lots of you have them in some form or fashion so we might as well deal with your reality rather than my ideals!  So, my thoughts below will be based on the best way to manage those debts but are not meant to condone their use.

These "other" loans have many disadvantages.  They tend to have higher rates than mortgage debt, the interest is not tax deductible, and in the case of title based loans, you are paying interest on an asset that is constantly going down in value.  A $30,000 car with a 5 year loan at 5%, you'll have paid about $34,000 and have a car that worth about $15,000 after that 5 years.  On a positive note, they allow affordable payments with limited cash out of pocket.

So, what's the best way to manage your car loan debt?  In my opinion, if you have a car loan, or car loans, my encouragement is to pay them off as soon as possible.  Review the first several posts to my blog to find some practical ways to raise thousands of dollars that can be applied to your car loans.  Review every expense to see what can be trimmed down, cut back or eliminated. 

If that's not enough, sell your car and replace it with something cheaper.  Think I'm nuts?  Consider this: Used car values have been INCREASING for the last year.  Your car may be worth more than you think.  I sold a car this year for 30% more than I bought it for 2 years prior.  It's not likely this trend will continue for too much longer.  This may be the best time to sell a used car. I always prefer private car sales over trading in to a dealer.  It's not hard, it's free, and can bring much better prices than trading your car in.  Craigslist is a great place to sell your car.  If your uneasy or unsure, contact me and I'd be happy to help walk you through the process.

If you are considering buying a used car soon, do your very best to do so without taking on debt.  It might mean driving a junker.  Who cares?  It's worth it.  By the way, I will be dedicating an entire post sometime in the future of the economics of buying a new vs. used car.  You might be surprised at what I've found.


Student loans, on the other hand, have some inherent benefits.  Not only did those loans help provide you a higher education, thus hopefully higher paying work, the interest is also deductible (within certain limits).  I still advocate paying them off as soon as possible, but allocate extra cash to your debt that doesn't have deductible interest (credit cards, car loans, etc.) Here's how I would rank debt in terms of pay down importance:

1) Credit Cards / Personal Loans
2) Title-based loans (Car, snowmobile, RV, etc.)
3) Student Loans
4) Mortgage Loans

Managing your debt wisely can pay huge dividends for your future.  I can't stress enough how important it is to educate yourself in this area.  It starts with learning to live within your means.  It's shown that people will adjust their expenditures in close correlation to their income.  If ones income increases by 5%, so likely will their expenses.  Remember back to a time where you had very little.  Maybe that was during your early working career, or maybe that's right now.  Is/was your quality of life different during that time?  A great saying I often reflect on is, "The more you know, the less you need."  I often meet individuals that have lived lives of financial ignorance until they are ready to retire and those are the most difficult conversations to have.  

Do something about it.  Challenge yourself to become more financially fit in 2011!

Until we meet again...