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Transportation

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What to Do If You Can’t Make Your Car Payments


Usually, I write about about ideas to reduce monthly expenses to free up cash for paying down debt or increasing investments to build wealth and move to financial independence. For many people, there is a day-to-day struggle along that road where existing debt and payments can be an issue. Here is a guest post from the folks at LendEDU, a US-based site that lets you compare loan costs from multiple providers to reduce your interest expense.

Depending on where you live, your car may be a nice convenience, or it may be a critical possession. If you’re in the city or live near your work, you may be able to get by without a car. If you have a commute every morning and no access to public transportation, however, owning a car may be a necessity for you.

It’s fairly easy for those with moderate-to-good credit to get a car loan, but what happens if you lose your job or have some financial difficulty and can’t make your payment?

Not paying your car loan can affect your credit and maybe even your employment for years to come, so simply ignoring the payment obligation isn’t a valid option. There are, however, other options for you if you find yourself unable to make your payment—and you should check them out long before your credit is in trouble.

Options If You Can’t Afford Your Car Payment

Talk to Your Lender

Your first step if you think you won’t be able to make your payment is to talk to your lender. You’re not the only person who’s ever had financial trouble—whether it be for just one month or a longer-term situation—and lenders have lots of ways to help you. If you’re not making your payment, they’re not making money, so it’s in your lender’s best interest to make it possible for you to do so. They do this in several ways.

Loan Modification

Sometimes, depending on the lender, you may be able to do a loan modification, which means you and the lender agree on a repayment term change. Usually the object of a modification is to lower the monthly payment, which can help you keep your obligation.

The downside to a modification is that it may raise your interest rate—and that means even though you’re paying less per month, you’ll pay for a longer time. A longer term also means paying more over time.

Refinance

If your lender is not interested in a modification, they may be amenable to an auto loan refinance. This is when you take out a second loan, with new terms, that pays off the old loan. If you receive a higher interest rate or longer term when refinancing, you’ll likely pay more over time. If you need the help right now in the short term, however, it’s a valid option.

Deferment

Some lenders offer a one-month deferment, which means they allow you to skip a payment, which they tack on to the end of the loan. If you’re simply having a temporary financial shortage, this could be an option. Just keep in mind that if you do this, your loan term will be a bit longer—and your final payment will be more. If you do take advantage of this, you’ll want to make that “skipped” payment as soon as possible, in addition to your regularly scheduled payment.

Balance Transfer Credit Card

Another option is to get a balance transfer credit card with a 0% APR balance transfer offer. While doing this can give you a year to pay down the balance without also paying interest, keep in mind that if you can’t pay it off within the introductory period—usually 12 months—the interest rate will skyrocket back up, possibly to almost 25%. If you’re not careful, you could find yourself in an even worse position.

HELOC

If you own your home, a home equity line of credit could give you the money you need to get caught up on your loans, consolidate payments, and help you keep your car—all at a lower rate of interest than you may have with your car loan. Since the money comes from your home’s equity, the rates are generally better. Be aware, however, that because your home secures this line of credit, if you find yourself unable to make that payment, you could lose your home.

Trade Your Car in

Trading your vehicle in for something less expensive can also help if you’re unable to make your payments. The object here is to trade it in for another vehicle that is cheaper—and therefore will result in a smaller loan and lower payment.

Allow Someone Else to Assume the Loan

A few lenders allow loan assumption, or someone else taking over the payments on your loan. Most lenders prefer to do a new loan for the new buyer instead of them taking over your loan, but a loan assumption can be done in some cases. You can also make an agreement with someone who will make the payments to you, and then you turn around and pay the lender. This is a highly risky maneuver, however; if your other party decides not to pay, not only are you out of the payment, but you’re out of the car.

Sell the Car

If your car is in decent shape and not “upside down,” where you owe more on it than its Blue Book value, you may be able to sell the vehicle and use the money to pay off your loan. This is one of the better options—if you can get the full value of your loan in the sale. If not, you’re still on the hook for any remaining payments.

Repossession

If you’ve gone long enough without making payments, your lender will send someone (a “repo man”) to physically take your vehicle back on behalf of the lender, who then sells or auctions off your car. Any costs gained in the sale or auction are applied to your loan, and whatever is left—plus the costs of repossessing it to begin with—is passed back to you. If possible, don’t ever allow your car loan to get to that point.

Voluntary Repossession

This is mostly the same, except in a voluntary repo, you’re turning over your vehicle to the lender of your own accord. If you’re late on several payments, you may want to consider this option because it will save you the additional costs involved if the lender repossesses your vehicle.

Bottom Line

The best time to start looking at options is before your payment is late. If you even think you’ll have a problem making your payment, talk to your lender first. Have a plan in place for if you experience financial difficulties, and make sure you’re aware of all your options.

Read full article here: What to Do If You Can’t Make Your Car Payments

For thoughts on how to buy the perfect economical car, have a look here.

What are your thoughts on the costs of running a car and what to do if you can’t make the payments? Let me know in the comments.

How to buy the Perfect Car

Have a look at the parking lot of one of those suburban mega-restaurant-outdoor malls on a Friday night. You know, the ones with the Moxies, Milestones, Keg, Jack Astors and…well you get the idea. The asphalt is adorned with beautiful cars. Shiny, late model Bimmers, Acuras and Lexus SUVs. Who is driving all of them? How is it that they are all driving the perfect car? And how come they can afford them and we can’t?

The simple answer is that they aren’t affording them. The average car loan is now 69 months. That is insane. It has been steadily rising. People then leave car loans early to get a nicer car and carry their negative equity over to another new car loan. Interest on the interest. Logic out the window. The marketing machine and our peers have convinced us all what we need and to not worry about paying for it. It is, in fact, time to worry. So what is the perfect car and how do we find it?

The Acura vs Honda experiment

I recently moved from an Acura MDX to a Honda CRV. I was curious what would happen if I made the switch. It was fascinating. Nothing happened. Same friends. Same fun road trips. My kids still speak to me. Solid safe driving. It doesn’t accelerate as quickly, but that doesn’t really change the outcome of my grocery trips or business meetings. It likely saves about $4,000 a year vs the more luxurious MDX. My favourite new features? Runs on regular gas, cheaper insurance, half the fuel cost, lower servicing costs. And it has every kind of feature and drives great. I lost some prestige and the ability to carry an extra couple of people for when I need to do that twice a year. I’ll ship them in an Uber for an extra $50 a year. They’ll be fine. As a financial speaker and writer, I am likely better off with less prestige.

So what is the perfect car and how do you find it?

Start with the question of whether you need a car or not. Can you locate closer to your work? Carpool? Walk? Bike? Can you Uber around the rest of the time? Cars are a massive expense and doing without one and using the savings for debt repayment or increased investment is a powerful way to get ahead.

If you can’t avoid one, aim for the simplest, most reliable one you can find. The black Toyota Corolla in the picture is a great example. My son bought it as a 4 year old used car when he graduated. Lived frugally and paid the whole thing off in a few months. Runs like a dream. As a software engineer, could he have handled the payments on a Bimmer? Sure. But why? The CaRolls Royce (as he calls it) has manual winder windows, hub caps and a pretty spartan interior. Would father and son trips be more fun in a nicer car? I doubt it. What would have been the Bimmer payments are in his TFSA, compounding nicely. In one simple move, he gets a safe reliable ride and starts a path to financial freedom. And he is sure that his dates are interested in him, not his Corolla.

Where do you find the reliable ones? Easy. Subscribe to Consumer Reports Online. $25 a year. One of the great bargains. Look up the cars you are interested in and check the reliability score. Couldn’t be simpler. My CRV was their second best pick for small SUVs. I will admit that I liked the look of it better than their top pick.

How much can you afford for a car?

How much can you afford? I like the concepts on the interest.com site. Check out their post on how much car you can afford. They talk about a 20/4/10 rule, meaning to put down at least 20%, pay it off in less than 4 years and not pay more than 10% of your gross compensation for car payments and insurance. Good advice.

On affordability, don’t push your budget upward because your budget can handle the extra payment dollars. Think about your finances in terms of your net worth over time. In other words: What is the car decision that will optimize your wealth over the long term? Learn more about that here.

Once you get the car, take the time to do the scheduled maintenance. The newer cars tell you when they need help. Heed the call. It will save you in the long run.

So what is the perfect car?

The perfect car is one that gets you there safely and optimizes your wealth over the long term by being cheap to operate, reliable and have reasonable servicing costs. And even with Bluetooth connectivity, GPS mapping with traffic and route optimization, heated steering wheels, adjustable lumbar support and sculpted alloy rims, there is still one car feature that turns a good car a perfect car. The lack of a monthly payment.

What are your tips for finding and driving the perfect car? Let me know in the comments.

 

 

 

Commute Costs – How to Actually Save

With gas prices rising, articles have started to appear about how to save on your commute costs. Some suggest moving closer to your work. There is undeniable logic about that one, but a house move is a drastic change with large switching costs, and there is no guarantee that your work won’t move a month after your house does. Other articles suggest switching to a more fuel-efficient vehicle. Sage advice! The idea can work when it’s actually time to change vehicles or when you’re in a position that you no longer need to haul 3 kids and goalie equipment to practice every week.

Does it make sense to shop for gas prices?

Most baffling is the business of shopping for the lowest gas prices. The reports on AM radio are a curiosity, dutifully reporting whether gas prices will rise by 2 cents or fall by 1 cent overnight. But what do I do with this information? Let’s say I have a 60-litre tank that is half full, and that I learn that gas prices will rise by 1 cent overnight. Should I spend 40 cents in gas to drive to the station and back to fill up a half a tank, thus saving 30 cents over tomorrow’s prices? What if the price falls by 2 cents the next day and I missed a further 30 cent savings?

If the conventional ideas don’t help much, how do you actually save on commute costs? One obvious one is public transit, where that falls along your route. Let’s look at some other ideas that can be implemented right away that can save no matter where you live and work.

Look more closely at parking costs

A great place to start is with parking. If you don’t have paid parking, take some time to shop around for parking in your area. Over lunch, look at prices of nearby lots. Check online for parking rates in the area of your work. The Best Parking site is a great place to start. See if nearby apartments or condos have space for rent. Adding a 200-metre walk at the end of your commute can add some needed exercise to your day – bonus. If you are paying weekly, see if you can switch to monthly. Saving even $5 on parking daily is worth over $100 monthly!

The best commute is no commute, or at least fewer of them

Have a chat with your manager – can you work from home one day a week? Set commitments of what needs to be done and show how you can achieve them as well or better from home. With an average Canadian commute of 26 minutes, you can free up an extra hour of work time. This approach saves 20% of commute costs including parking, gas, car maintenance and road tolls. At even $5 per trip for gas and $20 for parking, this change is easily worth another $100 monthly.

Save half of your commute costs while greening the planet

Can you carpool with friends or coworkers? Carpooling isn’t new, but it still works and can cut the cost of commuting by half or more. Let neighbours and coworkers know that you are interested in ride sharing. Waze’s carpooling app isn’t yet in Canada but stay tuned for new high-tech ways of finding a ride. Between parking, toll roads, gas and maintenance, splitting the costs can save an easy $150 monthly and help green the planet. With 2 in the car, you can take advantage of HOV lanes and speed the commute.

Keep commuting, just without the car

If your office is less than 10 km from home, what about biking to work? Even for a day or two a week? See if your building or an adjacent one has showers. Or at least a washroom where you can do a quick wash up. Bring a pack with a change of clothes and a compact camping towel from MEC. A bit of logistics, but great exercise, reduced commute costs and maybe a chance to drop your gym membership. Check online for bike lane locations. Two Wheel Gear has a site with lots of resources and products. At 2 days a week, this can save $10 weekly in gas and $40 in parking. Total monthly savings can run $200 just on those 2 factors. Bonus, your work day starts with a fresh head brimming with oxygenated blood.

Save on your commute and add $50,000 of wealth

Somewhere in these ideas is a new approach to your commute and a chance to save at least $100 monthly. Use the savings to pay down debt or invest it to add over $50,000 to your net worth over the next 20 years when invested at 7%.

Spend more time reading, staying fit, enjoying family time and taking in art and music. Less time chasing gas prices.

What did I miss? Do you have more ideas on reducing commute costs? Let me know in the comments.

For more ideas on real ways to save on your expenses to build wealth or reduce debt, check out Cashflow Cookbook.

Slash Time and Costs of Airport Trips

Fast and Easy Airport Trips

With the Uber app (ok, maybe Lyft) nestled in both our minds and our iPhones, we usually have devices drawn and swiped before even finalizing our destination. The old world of calling a taxi (“crap they aren’t answering…”), waiting on hold (“we are experiencing longer delays than usual…”), then checking back to see where the heck he is (“he should be there by now…”), then fumbling for some cash (“are you sure you don’t take credit cards…”) is mercifully behind us.

The system has made us all winners (well maybe not the taxi owners) and hopefully the small issue of Uber losing a fortune each year won’t end the party. The taxi companies are adding mobile apps, so even if Uber fails, hopefully we won’t have to return to the taxi-hailing and tracking approaches of the Jurassic era.

Avoid Uber surge pricing and long waits

But the new world sometimes falls apart when travelling to and from airports. They tend to plant airports miles (ok, kilometers) from where you need to go in your home or destination city, and massive numbers of travelers push Uber into surge pricing. Net result is a nasty road bill at either or both ends of your air travel. Not the usual $9 Uber ride. And once the Uber habit embeds itself in your id, there is a tendency to not even check the prices.

Then there is the issue of snow, sleet, and other weather delays on the way from city to airport or vice versa. Sometimes an accident impedes the progress even more. Anything to do with airports involves deadlines and rushing around trying to get somewhere and none of this is helpful. And good luck trying to click off a few emails as your Uber driver yaks on the phone, swerves through traffic, cranks his rap favorites or (even worse) tries to make conversation.

Wait, what’s that big curved concrete thing connected to the airport?

It’s an airport-rail link. A brilliant way to get from the airport to downtown or back. Smooth, quiet, fast. There may be traffic, but it’s way over there and out of the way. There could be weather, but it’s not slowing us down. Loud rap music? Maybe, but its travelling from headphones direct to brain. Someone else’s.

Some of these sleek rolling beasts even have wifi for a little extra connect time. A productivity boost. Or skip the wifi and opt for some conversation with your travelling mate. Or use the 20 minutes to log some time with your Headspace meditation app to Zen yourself prior to the big sales call.

For fun, turn on your Waze app and check the speed. Glance over at the stalled traffic. Back to the Waze speedo. Love it. Sometimes the trains are speeding relative to the nearby posted highway signs. Legally. Because, being on trains, hey we can do that.

Next trip, see if there is an air-rail link that can help you get from home to the airport, or airport into your destination city. In Toronto, the difference can be $100 or so with the Union Pearson link being just $12 a ticket. A big deal? Not really, but a nice tweak that can help ease some stress and get you there on time.

Where can I streamline my airport trips?

Chicago, London, Barcelona, Kuala Lumpur, Toronto, Tokyo, you name it. Even Pyongyang has one (although there are other issues there). And more being built all the time. Give one a try and let me know what you think.

Do I take the rail link every trip? Nope. Heading to Whistler from Toronto with 2 pairs of skis, a boot backpack, suitcase and laptop bag, I opted for the door-to-door ease of an Uber. But with just a laptop bag, I am on the air-rail link. Usually faster than a door-to-door Uber. And the walk from the train to the last-mile Uber helps me close the activity rings on my Apple Watch.

Air-rail links are a good quick transportation improvement and can free up a bit of cash. For more than $2 Million of wealth-building ideas, check out Cashflow Cookbook.