Note: This is a post from Joan Concilio, Man Vs. Debt community manager. Read more about Joan.
I had the misfortune this month to learn the term Morton’s Fork – an official name given to the concepts we call stuck between a rock and a hard place or picking the lesser of two evils.
This was a vocabulary lesson I’d have liked to avoid.
But last month, the transmission blew up. (The mechanic’s exact phrase was something like, “There are actually pieces I’ll have to dig out of other parts.”) It was less than pretty – and all the related work was estimated at about $3,500.
Even piecing together the most money we could, we weren’t coming up with that amount. So we were forced to start thinking about really tough choices.
We’ll come back to those in a minute. In the meantime, let’s add in another situation that arose less than 2 weeks later, when the washer malfunctioned and flooded the (finished) basement.
Never one to let my personal misfortune go without some greater use, I shared this on the Man Vs. Debt Facebook page:
In good news, the homeowner’s insurance I’d recently negotiated covered all the repairs but a $500 deductible.
In bad news, the washer, which was quite old, was no longer repairable for a reasonable cost. Ah, again with the tough choices.
So what do you do when your whole financial world seems to be falling apart? For someone who’s motivated by data like me, you make yourself feel better by tracking your successes.
Updating our Very Next Steps
As soon as these mini-crises hit back to back, I got out our debt-payoff tracker and started plugging in numbers. We’d already made a few payments for the month, and I wanted to get my head around where we stood before we made any decisions.
It turns out we hit FOUR of our V.N.S., or Very Next Step, goals this month!
- Hated BoA MasterCard: Our goal had been to get this under $21,000, and it’s at $20,719.06. We want this under $20,000 by the end of 2012!
- Citi MasterCard: Our goal had been to get this under $17,500, and it’s at $17,420.93. Up next is getting this under $17,000.
- Union Plus MasterCard: Our goal had been to get this under $8,000, and I purposely calculated my last payment to hit this, so it’s now at $7,999.56. Next, we’ll aim for under $7,500.
- Springleaf loan: Well, we’d aimed to get this under $2,000, and it’s at $1,900. But we’re holding off on a VNS for this debt, for reasons you’ll see in just a minute.
Don’t forget that we keep track of all of these debts in summary (complete with V.N.S.) on my “Joan’s Finances” page – so you can see how we’re doing at a glance. Here, I’ll just hit the updates.
Eating my words
I have come out STRONGLY against taking on any new debt under any circumstance.
When it came right down to it, we decided we’d pay cash to replace the washer and pay the homeowner’s deductible (to the tune of about $1,100 total).
That was a hard enough choice, because it meant being skimpy on our extra credit-card payments – and it ate up most of what we’d saved to use for Christmas giving.
For the car, though, we were faced with some even-more-evil evils to pick from.
1. We could figure out how much we had available in cash and purchase a used, “beater” car.
This would be the no-debt option. This would also be the no-guarantees option, as the cars in our price range on Craiglist included descriptions like “will pass inspection with some work.”
2. We could finance some amount of money to pay for the transmission.
IF we chose to finance, this would be the way to finance the smallest amount. This would also be a more guaranteed option; not only is the transmission itself warrantied, we are well aware of the condition of the rest of the car. The big down-side is: It means incurring NEW debt.
3. We could finance some amount of money to pay for a better car than the Taurus.
In some ways, this is the most pragmatic long-term option. We already have a specific plan for our next vehicle – and if this transmission issue had happened two years from now, we’d be paying cash for a much better car, planning to drive it for 10 more years.
Many people would say that the best option even now would be to purchase a solid late-model used car, to the tune of $12,000 or so. Still others would say the best option might be to take our chances with a $1,500 used car, scrap the Taurus, and stay where we are, debt-wise.
You have probably guessed by now that we of the general middle-of-the-roadness took Door Number 2, financing the cost of the transmission.
(AKA: Joan eats her words and takes on new debt.)
But wait, there’s more!
Of our financing options, the one that became more and more appealing to us was a personal line of credit from our bank, which is locally owned.
The interest rate was good – and we were approved for an amount considerably higher than we needed.
This is worth noting for a couple reasons.
First, since it’s a line of credit instead of a loan, you only pay based on what you draw, no matter the approval level. That was more appealing than a conventional loan.
Second, it was at a pretty low interest rate – unlike most credit cards for which we’d qualify.
We are now the not-exactly-proud-but-sorta owners of this line of credit. I’m not thrilled, but it really did come down to the lesser of two or three evils.
And there’s another benefit, too.
We’re going to consolidate two of our smallest debts onto this line of credit – netting us one less payment each month. We’ll be getting rid of the Springleaf personal loan I mentioned above, as well as the balance on our credit card with the mechanic. (Irony, yes?)
(AKA: Joan eats her words AGAIN and goes for debt consolidation.)
I can’t honestly say I’m happy with how things have turned out this month. But I’m not complaining, either. I am feeling very blessed to have the options I do – because a few years ago, I can honestly tell you that there would have been NO options available to us.
And the end result may very well be that we get out of debt FASTER thanks to this – if we use the line of credit smartly and roll other debts onto it.
It’s not the plan I’d have imagined, but we can still make it work.
Have you ever been in a financial rock-and-a-hard-place trap? How did you decide what to do?
I’d love to hear your comments!