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Between a Rock and a Hard Place: Joan’s Mid-November Financial Update

in Joan's Posts, Pay Off Your Debt, Rants

Note: This is a post from Joan Otto, 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.

Remember, we only have one car, an almost-10-year-old Ford Taurus. We’ve put some work into it this year – new tires, for instance – and it’s generally in good shape for its 120,000-ish miles.

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:

Yep, that was the unfinished back room of the basement. The front room looked… like that, on top of carpet.

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.

I’ve also railed against things like debt settlement and, to some extent, debt consolidation.

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!

{ 53 comments… read them below or add one }

Jenny November 26, 2012 at 10:20 AM

This reminds me there are definite benefits to not having a clothes washing machine.
Though I’d still really like to go back to accessible coin washing machines the next time I move. I’m spoiled, to have laundry service (pretty common in Thailand and for a fee) but really I miss having control over washing my clothes. Also no dryer so sometimes they don’t really get clean in the humidity. Grass, greener…

Also, I’m starting to consider that demonizing debt completely is the wrong approach. Especially after listening to a Planet Money podcast detailing ‘the one time the US paid off the national debt,’ and how things fell apart again within one year for other economic reasons. What we need is balance, and much more careful planning and financial education, but perhaps taking the hardline prohibition sort of approach is also detrimental? I say this realizing the notion of going into debt for graduate school has fostered my stalling on figuring out graduate school. Speaking to a former professor there are a lot of ways to minimize the debt that I will be looking into; but flat out thinking no I can’t take on that expense is also paralyzing; and a great excuse to stall on graduate school.

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Joan November 26, 2012 at 11:20 AM

Jenny, I think the thing is that there are different mindsets that are beneficial in different situations.

In my case, my long-term mindset has not changed. If anything, it’s actually become more solidified – I am adamant that I do not ever want to finance a vehicle purchase, or vehicle repairwork, for the rest of my life. I’m adamant even though I just DID finance the repairwork. I also do not want to have open credit cards ever again (the ones I list here are closed.)

But those are goals that keep me moving forward constructively – to try to mitigate this setback as much as possible, to get out of debt even FASTER, and to renew my commitment to never being forced to make such a crappy choice in the future!

There are also people who use “no debt” as a crutch to prevent growth. “I can’t quit my job and expand my thriving side business because I’d need to take out a small business loan.” If it’s that you’re working to save up the money so that you can one day do just that (if it’s your passion), that’s different. But if it’s something you tell yourself because really you’re afraid to make a change, that’s a crutch.

I know you well enough to know that your grad-school situation isn’t like that – you’re not using the no-debt thing as an “excuse,” I don’t think, but you’re weighing decisions, and decisions change. If the decision now is, you really should go, then I know you’ll do it in the most reasonable way possible!

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Jenny November 26, 2012 at 11:38 PM

Thanks Joan. It’s good to hear that. I’ve heard so many outside perspectives on how I manage my money; and so many of them have been critical – at least in my perception; I really appreciate some positive feedback.
It helps to remember that my priorities are not everyone else’s priorities, as well, when I hear the nagging voices of others in the back of my mind that go against what I’m striving for.
I think that holds for negative comments to anyone’s actions – it really helps to remember that not everyone has the same situation, and even with certain priorities, things don’t always happen that way 100% of the time.

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Sharon December 1, 2012 at 11:23 AM

Hi Jenny. I too let the idea of taking on student loan debt hold me back from applying to graduate school. I spent so much time demonizing the debt that I would incur. However, it turns out that having the time to mull –endlessly it seemed!– was a good thing for me. It allowed me to process my emotions about whether grad school was really the right thing for me.

It also helped me to realize that, in my case, debt wouldn’t be a demon, but a tool to help me reach my goal. Waiting also forced me to find alternative (cheaper!) programs and to look for scholarships. I use the word “forced” here to show what a fight I was having with the idea of debt– phew! In other words, if I’m gonna do this debt thing, I’m gonna do it with my dukes up and be fully conscious of my decision. I’m hoping to start grad school this winter, and I feel at peace with my decision. Best of luck to you!

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Jenny December 7, 2012 at 10:20 AM

Thank you Sharon. I really appreciate this take on the matter. It’ll take some time; but maybe that’s part of the point.

Lydia November 26, 2012 at 10:49 AM

I must tell you how much I ENJOY reading your articles, as I try to find new ways to be inspired to be Debt-free and avoid the financial crisis that occurs throughout life. I can say that Ive learnt tons of lesson and at the end of the day, being a Single-mother has been my greatest obstacle, to getting debt-free, but no excuses, the kids are growing and eventually it will all be a thing of the past. Im also a HUGE fan of consolidation and refinancing but this has gotten me between, my ROCK & HARD PLACE, to the point where I tell myself that I must be addicted to Loans, why else would I choose this as the only route to trying to make life better?

My question to you though, is this: Why was it necessary to have up to 3 Credit Cards??? When i read stories about debt, it baffles me every time. I can understand the regular payments to be made in life, Rent/Mortgage, Utilities, Food, Transportation, etc. But why add the extra anxiety of owning more debt, by willing accepting more than ONE avenue of debt?

As I learn day by day to ignore most of my needs and the kids needs and stick to the Basics, I somehow feel like little by little, I will return to a place of complete control of my Finances and being debt-free. :)

Lydia C.

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Joan November 26, 2012 at 11:31 AM

Lydia, I’m with you 100%!! I SORELY wish I had zero! Right now we have a total of 8 debts, which will go down to six when we pay off the two small credit cards.

Two my husband brought into our marriage, two I brought into our marriage, one is the new line of credit established together, two (including one of the ones to be consolidated) were cards we opened during our marriage, one to pay some house expenses and the other with the mechanic, and the last is a personal loan (also to be consolidated onto the line of credit) that we used to pay for the new heat pump in our house.

Trust me when I say they weren’t things we’re happy about. I think you’ll find that for many people who are struggling to START getting out of debt, there have been several points where it was “everything is maxed out and there’s an emergency so we need a new funding source.” Now, the irony is, I had a BUNCH of options – for instance, if I weren’t categorically opposed to one of our credit cards in particular, I could have easily put the transmission work on there. But it wouldn’t have been smart mentally or financially to do so, so now I added to the “list.”

You can be sure the list only will get smaller and smaller – until it’s just the mortgage – then we’ll figure out our housing game plan and get down to ZERO!! :)

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Jason Burk November 26, 2012 at 10:56 AM

You should have stopped at “But wait…there’s more!” You just rationalized doing exactly what you’ve strived so hard NOT to do. I’ll just have one more drink. I’ll just have one more smoke. I’ll just take out one more tiny loan…

I can completely understand and relate to the sticky wicket you’re in, but as a messenger to and shepherd of many readers, you took a big risk highlighting the virtues of going further into debt and didn’t so much as blink an eye!

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Joan November 26, 2012 at 11:39 AM

Jason, I’m actually surprised you’re the first person to call me out like that – I expected much more.

It’s a fair question – and I think the only answer is, if you think I didn’t blink an eye, I hope you’ll read some more of my previous posts and dig deeper into this one and see how gut-wrenching of a situation this was.

I’ve done my crying and my praying and my panicked dash around the house looking for something, anything, else to sell to come up with the money. In the end, as I said, I’m not happy – but I’m willing to keep going.

I AM happy that the end result is one fewer debt overall. (Now only six to pay off.) And I AM happy that I can share my story here, because I feel strongly that there are people out there who are struggling with similar decisions and my walkthrough of how we decided – not how I think anyone else should decide, but my own process – might help them decide what they do (or don’t) want to do!

I think you hit a key point with the word rationalize. In a way, every post I write could be viewed as a rationalization. But I think that’s a function of my writing style – I write posts after things have happened and explain why we did what we did. The function of the post is to give a look into the way we go about making decisions. So whatever decision that is, the post “rationalizes” it in a way! If I’d decided to go carless and walk everywhere for the next 12 months (we DID consider that, btw!), then the post would have explained the rationale we used in making that choice too!

That said, I understand the seriousness of what you’re saying – and I hope you’ll read not only more of my posts but some of the other comments here, where I’ve dug even deeper into some of the mindset that this awful experience has solidified for me!

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Penelope November 29, 2012 at 12:12 PM

Joan,

I am continually amazed by how you address the comments that you receive. I admire how you so thoroughly and thoughtfully answer your readers’ questions and explain your position with such transparency. Thank you for that. You are making a significant contribution to the blogosphere.

I bet that you are a real LISTENER in your relationships and in life in general! Good luck and stay strong with your endeavor.

Penelope

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Joan November 29, 2012 at 1:14 PM

Penelope, your kind words were a real gift to me today! Thank you so much. I will do my best to keep answering all questions as thoughtfully and openly as I can! :)

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Gillian @OneGiantStep November 26, 2012 at 11:35 AM

I disagree with Jason. I think you do a great job of really weighing all the options available and taking the best one THAT FITS YOUR SITUATION. The long term goal remains the same and making changes along the way isn’t justification but a realization that the original plan doesn’t always work out and adjustments have to be made. I still hear that you are strongly committed to getting out of debt but are not rigidly entrenched in a single path to that end. Good work.

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Joan November 26, 2012 at 11:59 AM

Gillian, thank you so much for the kind words and the deep understanding you show of our big picture! My hope is that, where some people would look at this and say, “That’s it, I just can’t tackle this debt, I give up!” instead I’ll be the one at the end going, “HAH – I made this work out DESPITE all that life has thrown at me!” And it’ll feel goooooood! :)

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Financial Samurai November 26, 2012 at 12:20 PM

Yikes, sorry about the transmission and flooding!

My water heater blew up 2 years ago and that was a PITA! Cost about $1,100 to fix, but the real PITA was getting the water out and replacing the carpet and stuff.

Those are some mighty nice credit cards you have Joan. Is it reasonable to say you can’t get in that much CC debt if you don’t have the income to get approved for that line of credit? I’ve only got one rewards CC, and the credit line is $35,000 when I applied. Don’t think they’d let me have much more than $50,000.

Good luck!

Sam

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Joan November 26, 2012 at 1:00 PM

Sam, there’s a lot of factors at work – we do have relatively high income (just over six figures combined, which for some areas would not be high, but for central Pennsylvania is above average) – but honestly, these cards were mostly acquired in the mid- to late ’90s, when credit was much easier to get (and since we paid on time, the limits weren’t generally lowered even when the balances dropped.)

It’s funny for me to talk about credit “limits” since the accounts are mostly closed, but I know the BoA one, had at its highest a “limit” of $42,000. I truly don’t understand that – except to say that seeing it makes me realize how little I want to support the credit industry!!

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Financial Samurai November 26, 2012 at 1:06 PM

A six figure income is great! You should be able to pay off your debt in no time!

As an optimist, whenever I see someone with high CC debt, I assume they also have high income, otherwise they wouldn’t have high debt. CC companies can’t provide high credit to people with low income, otherwise, they’d blow themselves out of business! :)

Sam

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Diane C December 4, 2012 at 10:51 AM

This fragment made me laugh – I, too am a fairly high wage earner and a have solid credit history and scores. I am lucky enough to be able to use credit cards for convenience. I take a spending holiday every February. As my savings increased, B of A kept lowering the limit on my mileage card, despite it being paid off monthly. When I called, they explained that it was the TYPES of charges that I was making that caused them to lower my limit. They did not like that the 99 Cents Only Store was where I used the card most frequently (easier, as I don’t carry much cash, rarely carry checks, and am not fond of debit cards, either). I laughed and jokingly asked if I shopped at Whole Foods, would my limit would go back up. Her answer? “Probably”. I laugh (and say a prayer of thanks to Dave Gold) every time I swipe the card at one of his stores.

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Bilgefisher November 26, 2012 at 12:21 PM

Joan,

We had a similar situation in May this year. My paid for Honda Accord needed well over 5k worth of work. We bit the bullet and bought a used low mileage Prius. I hate the debt we incurred buying it, but we paid off my wife’s car with the sale of the Honda thus lowering our payments $200 per months and saving $100 per month in gas. It has become our errand car on the weekends. We will have this car paid off within 2 years.

The big question I asked myself, and you should ask yourself, how do I prevent getting into this situation again? We have a car account where all our maintenance, insurance, gas and payments come out. We put far more into than we spend. The extra money (above our maintenance reserve) is going towards paying off the prius. When the prius is paid off, we will let that account build and invest that money. All the invested money will be specifically designated for our vehicle needs. We will have passive income pay for our vehicles.

Before I forget. I noticed you paid $600 for a new washer. Is that right? I strongly suggest you look up your local used appliance shops and possibly return the washer. Its not as bad as it sounds, many used appliances never have been used. They get sent back for scratches and dents or other minor items. We had to buy all new appliances for our house (we renovate houses that we will live in). It was a short sale and the sellers took everything. We bought 22.5 cu ft fridge with freezer on bottom, a dishwasher, a 5 burner flat top stove with 8 zones, and a washer and dryer for $2,000 dollars. All GE elite appliances less than 1 year old. Can’t see any scratches or dents and all had 1 year parts and labor warranty. The washer and dryer combo was $500. Retail all the appliances would have all cost us well over $5,000. The similar washer and dryer combo were $1200 at sears. I think you will be pleasantly surprised if you take a gander at one of these used appliance shops. I will never buy new again and neither will my wife. She is very picky (think Monk) on these household appliances. She was amazed at what we found.

Jason

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Joan November 26, 2012 at 1:10 PM

Great minds think alike! Unfortunately, our local used shop did not have the size we needed… gotta love non-standard doorways in older houses!! BOY does it make it hard to buy appliances. We actually had to unframe a door entirely to get our dryer. :)

We’re really happy with the model we got – it wasn’t actually $600, closer to $350 (we also have a little bit on top of the deductible that we’re choosing to pay for some non-covered things as part of the remodeling, which is included in that total dollar figure in the post) – and it’s an awesome HE, larger-load-size model than the one we had before. I’m loving it. We do a LOT of laundry, not only our family’s, but friends in apartments, and some long-term houseguests who used our place as a home base while traveling over the past couple months… and the water savings with this HE is immense compared with the costs of running as many loads as we were in the 11-year-old previous washer.

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Bilgefisher November 26, 2012 at 8:43 PM

Joan,

Glad to hear you got a good deal. I understand the issues with old houses, but gotta love them old places. As the saying goes, they just don’t build them like that anymore.

Jason

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Honolulu Aunty November 26, 2012 at 3:16 PM

Aloha Joan, Adam and Friends,

I remember being in situations like that when I was younger. It was one thing after another, and it seemed like two steps backward for every step forward. You seem to have a very fine plan in place – very reasonable and do-able goals that will get you out of debt.

The Suze Orman way of dealing with finances is a great way to get out of debt, but she stops short and limits opportunities, IMO. Just thinking about the debt equation is not enough. Lowering expenses and debt is on one side of the equation, and the other side of the equation is increasing income.

It took me a few years to get out of the credit card and loan debts that I had, and it was hard to curb my spending habits. However, I was committed to doing so, and also to do the things that I needed to do in order to become financially independent without depending on a job.

I took classes – lots of classes, and made a lot of mistakes along the way. But I learned how to separate the wheat from the chaff. I am now very close to financial independence and have learned how to use debt in ways that benefit rather than burden me. I get closer to our goal of having passive positive income that exceeds our expenses every month, at which point we are set for life.

I wish I could play the CashFlow game (by Robert Kiyosaki) with you. Please realize that you are on the right path of getting out of the bad debt syndrome, and there are other solutions to get out of the rat race that will set you free.

Mahalo (thank you) for sharing, please contact me if you would like to “talk”.

With aloha,

Aunty

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Joan November 26, 2012 at 5:24 PM

I’ve read a lot of those same authors – you’re right about their pros and cons! I am definitely glad to be adding income streams, too. We were actually just talking about that Friday in our You Vs. Debt session!

AND… added good news… our used-book-sales side business is doing GREAT thanks to all the Cyber Monday shoppers! My husband just made a couple hundred dollars to go toward paying things off faster! :)

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Honolulu Aunty November 26, 2012 at 6:53 PM

Hurray for your side business! I love being an Amazon seller but have to control being an Amazon buyer. Our local library has a lot of audio books which I use in my car as a “driving university”.

Will check out your Friday session,

Mahalo,

Aunty

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Baker November 27, 2012 at 4:48 AM

As a side note, I have an “I’m Fine, Thanks” package waiting for you. But, I have no shipping address!

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Honolulu Aunty November 27, 2012 at 4:59 AM

Glad I checked in! Sorry about the address missing. You can mail it to me at Honolulu Aunty P.O. Box 10592 Honolulu, Hawaii 96816.

Looking forward to seeing it!!

Nick November 26, 2012 at 3:23 PM

Did you ever consider buying a semi-identical taurus? You could probably get one with a good transmission for well under $3.5k, and keep your broken one around as a parts car. It would be cheaper, you’d have the same type of car to drive, and a whole bunch of spare parts for the next repair.

This of course assumes some spare room in you garage or a corner of your yard to keep the old car. Also you might have to learn some car skills (I’d consider that a good thing).

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Joan November 26, 2012 at 5:23 PM

Nick, we almost did that – we had a friend whose daughter had a “junker” Taurus. In our case, the transmission on that model is horrendous – my mom has THE SAME car, and her transmission died 50,000 miles sooner than ours did! So I was specifically going for one that was rebuilt and warrantied rather than an original. This dumb thing is warrantied for 100,000 miles – longer than the rest of the Taurus will be with us, almost for sure!

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Cay November 26, 2012 at 3:40 PM

Hey Joan,
I so enjoy reading your post. I am sorry about the flooding of your basement. We bought our home on a Thursday and pumped over 500 gallons of water out of our basement on Tuesday. Some “welcome to the neighborhood gift.” Our insurance didn’t cover any thing in our basement, and most of our boxed stuff was there while we were having new floors installed thru out the house. But, God was gracious and we didn’t lose alot of important stuff.
I have to agree with the statement “between a rock and a hard place”. I think at one time or another, we have all been there. The choices you and your husband made were choices right for you. Sometimes when we say “never”, God allows Murphy to show us how we would react under pressure in a “never situation.” In your case, the washer, the hot water heater and then the car. You handled it with grace. Good Job! The choice to go into more debt to fix your car was made with a PLAN to pay off said debt!!! A PLAN you didn’t take lightly and without much planning, prayer and agony. Again, the choice was the best for you and your spouse.
Joan, I am cheering you ON TO THE FINISH LINE!!! You can do it. I am behind you all the way.
Cay

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Joan November 26, 2012 at 5:21 PM

Cay, I appreciate your support so much!! I am so sorry to hear about what happened as your “housewarming,” too – but I so appreciate your attitude and your spirit. You are very right – God is gracious!! :)

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Kim November 26, 2012 at 5:40 PM

Hi Joan,

Just want to encourage you (as you have done for me). Our plan to get debt-free is just that, a plan. The plan needs continual adjustments along the way for better or worse, due to “life.” But when we make an adjustment, it doesn’t equal failure, just a slightly different timeline, but still pressing toward the goal . . . living and learning.

We too have run into “life emergencies” and have felt such sorrow. But then I realized, we’re not giving up! The debt will not beat us! :) Hang in there! We cannot wait to celebrate someday our “Year of Jubilee!!!”

Best regards,
Kim :)

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Joan November 27, 2012 at 12:47 AM

Wow, Kim, thank you so much! We can’t wait for that either – JUBILEE is a word that has a BIG meaning to us!!! :)

We’ll be celebrating together for sure! :)

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Leah November 26, 2012 at 6:30 PM

Ah Joan, I love your posts! I love that you are flexible, but still keeping the momentum towards your goal! Nice work and thank you as always for the inspiration!

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Joan November 27, 2012 at 12:47 AM

Thanks, Leah! Flexibility has definitely been the name of our game this month – if only I weren’t learning to practice it quite so much! ;-)

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David Neff November 27, 2012 at 12:28 AM

Joan,
Sorry about the road blocks the game of life has given you this month :-( You are great at laying the cards on the table and looking at all your options. What I have to come to realize in the last week or so is a whole new approach to how I deal with making decisions….I go with MY GUT. Whatever the GUT reaction is, that is what I will do. No deductive reasoning from the thing between my ears for this guy anymore. The GUT never lies and that is how I am making my decisions these days. Guess what my GUT told me about your car? Sell it, trade it, donate it…basically, get rid of it (and this is coming from a guy who drives a 1999 Mercury Sable with 105K miles). I think you are making the wrong choice this time. $3500 can buy you a descent used car with under 100k miles. If you are going to go under the knife again with a line of credit, why not just finance a used car in the 5-8 thousand range? We financed a 2006 Pontiac Vibe with 72K that we paid $8500 for. The interest rate through our credit union is 2.49%. The “line of credit” you took out is probably 3-4 times higher than that I would guess. I think you are just putting another band-aid on a car that is going to continue to need repairs. If you are going to go into more debt why not just get a newer, more reliable car? Just my two cents on the matter. Either way, great post and it is ultimately your decision to make…but remember….the GUT never lies ;-)

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Jonathan Welford November 27, 2012 at 12:52 AM

$3500 does seem to be an awful lot of money for a new transmission on such an old car, I would have considered getting a cheap runner around, perhaps another Taurus so you could keep the tires and use the current model for spares etc. An inconvenience yes, but once you’ve cleared your debts you could have a treat for saving for a completely new car as a reward for your hard work.

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Joan November 27, 2012 at 12:52 AM

David, that was something we were close to – but in the end, we kind of did the same thing – our gut feeling at first was, stick with this car, and bottom line, that’s what we ended up doing!

A little bit of it is a market thing – we live in an area where the economy has been such that most people are drive-till-it-dies folks, so while we’ve been keeping an eye on the market for the kind of vehicle we’d like, there hasn’t been a whole lot that is in even the same shape as the Taurus of Joy, let alone any better! (Or, it’s someone who can’t make payments any more and wants to flip their loan, and in those cases they’re MORE money than I’d pay to finance the same car myself, were I to want to!)

That said, I think if we’d found something in that range that was a serious contender within about an hour’s drive, we’d have had a harder time deciding not to go for it – and who knows where we’d be then! It was DEFINITELY a close one!

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Jonathan Welford November 27, 2012 at 12:45 AM

Joan

I’m sorry you’ve had a couple of big costs land on you, especially so close to the Holiday season. I suppose this is a reason why it’s wise to have 3-6 months salary in a buffer account to allow for those emergencies. However I can see that you’re wanting to clear down your other debt, so clearing off the high interest money sapping credit cards is a more favourable alternative.

Why are you so adverse about consolidating? surely a loan will have a lower interest rate that a consolidation loan? You can always over pay the loan, at least you will have a greater choice.

What’s happened to you happened to me, I had to start a new job, get new suits, spectacles and a car repair in addition to a house cost, the total bill for the whole lot was the equivalent of $5,000 and as I’d just left university I had no savings at all. I was in a mind freeze for a while and lived on bean on toast for a few months and cut back any little luxury until it was paid off. That experience set me up to be debt phobic for my lifetime. I’ve had mortgages, but paid them off as quickly as possible. I am super vigilant about every bit of money going out each month. I still have fun times, because of my financial principles, I could take a year off travelling in 2011. I now live a mortgage free life and next year going part time in my day job to pursue some other projects.

Have you scheduled an end date to the debt being paid off?

Jonathan

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Joan November 27, 2012 at 12:56 AM

Man, Jonathan, I cannot WAIT for mortgage-free life!!

Most of my beef with consolidation is regarding the consolidation of a settlement nature. When I’d talked about what I consider legitimate consolidation, in other words, a reputable loan where you control the transferring, my biggest issue was just that we weren’t qualifying for one that was “big enough to help.” (Amazingly, people aren’t lining up to lend me $60K, or even the $20K to pay off the monster BoA debt.)

Yes, mathematically speaking, even a partial knock-off of a high-interest balance helps, but mentally, we aren’t willing to end up with MORE payments to make each month.

We actually would not have consolidated these two small debts onto this line of credit except that the car repairs came in slightly under budget, leaving us room to do both instead of just one, and we realized we could net one LESS debt payment a month! SOLD! :)

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Jonathan Welford November 27, 2012 at 1:00 AM

Ah right, I understand. In the Uk we have draw down finance plans that are linked to your mortgage and you can borrow the value of your house (if you wished, but it’d be silly) at the lower rate and no redemption penalties for early payment, it’s compound on a daily basis rather than the term of a fixed loan. Perhaps these sorts of things aren’t available in the states.

So when is your end date for consumer debt free life?

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Joan November 27, 2012 at 7:32 PM

Ah! I knew you asked something else. http://manvsdebt.com/joan-finances/ – our goals section toward the bottom – that’s where I keep the current projections. It SHOULD drop just slightly here in the next few months – like maybe the “wow, Gold Medal” date will become slightly more reachable – and I’ll keep it noted there!

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mikebo November 27, 2012 at 10:33 AM

i enjoyed this post, because it shows that life is not perfect, and lots of life happens, usually all together at once. i have been in similar situations and counseled many people with their finances. The biggest outcome is that you know where you are going (getting out of debt) and you are not spending foolishly. How much is your emergency fund? i know we can’t plan for every emergency. more often than not it seems like there is some kind of force pulling you back, two steps forward one step back. it just makes you come to terms with how bad do you want to succeed. Very real post keep up the good work and keep pushing forward.

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Joan November 27, 2012 at 7:35 PM

Thank you so much for saying so – the emergency fund question is a good one. Right now it is sitting at exactly one mortgage payment, and that’s the level we’ve chosen for now to keep it at. Soon, we hope to bump it a bit more, so that we can KEEP that level in there AND have about $1K-$2K for mid-range emergencies. We also have (had) savings funds for various things – car repairs, Christmas, etc. – and that’s where the washer and related money came from, so now those are bottomed out!

I’m thinking a full post on emergency funds might be in my near future!

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Glenn Dixon December 1, 2012 at 10:48 AM

Joan,

I’m glad you addressed the emergency fund issue. I think that your debt and income levels are probably VERY typical in America. So was your car emergency. And yet your emergency fund was insufficient! Now imagine if something like this happened every four months or so. Would you be able to continue to avoid tapping the fund and just expand your debt, all in the name of keeping your debt payment schedule on track? That seems like a good recipe for treading water indefinitely.

Now if you had been able to pay this with an emergency fund, you would need to stop your extra payments and refill the fund ASAP. While this would possibly extend your final payoff date by a month or two, your total debt amount would never rise. It would continue to drop, even if the decrease might slow down negligibly. And the question is, which of these two scenarios takes a greater toll on your attitude and motivation?

My suggestion would be to immediately raise your emergency fund to a level that equals your transmission repair. This will give you greater security against new future debt. I would also suggest that you play around with different consolidation numbers on a spreadsheet. Not the kind that involves 3rd party services, just things like transferring balances to lower interest cards or lines of credit.

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Jason Clayton | frugal habits November 27, 2012 at 12:07 PM

Its always tough to be between a rock and a hard place. I think many of us have been there… as it seems that as soon as things are going well, something happens that sends you back to ‘start’.

Funny how life works out though, this blown transmission may have a silver lining that allows you to get out of debt faster. I hope this is the case for you Joan, as I can see from the posts I’ve been reading over the last year that you are making progress and there is a light at the end of the tunnel.

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Joan November 27, 2012 at 7:33 PM

Jason, thank you so much for saying so! That is certainly our hope too!

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Cheryl November 27, 2012 at 4:50 PM

So sorry to read about the craziness especially around the holidays. I recently had to get new tires and some other minor things done to the car to the tune of $850. Wasn’t pleased about it, but it was necessary. Two weeks prior (if that) I paid off my AmEx- I hated to use it again because I worked so hard to pay it off, but thought, all that work gave me a buffer in case of emergencies. I’ll work just as hard to pay if off again.

I appreciate your blog because it always gives me another way to view things. things happen- you deal with it the best way you know how- and move on. And by move on- I mean keep on trucking on the payments. We’ll all get to the debt free status eventually!

good luck joan!!

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Joan November 27, 2012 at 7:33 PM

We sure will, Cheryl – debt free IS possible! Keep on trucking yourself – can’t wait til we can both celebrate. (And sorry about the tires, ugh!)

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Kathleen, Frugal Portland November 27, 2012 at 7:10 PM

Dang that stinks, Joan! Sometimes I get upset that I want to do so much with my money and only a finite amount of money to use! This post makes me think I should beef up my emergency savings instead of continue paying off debts as quickly as I am!

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Joan November 27, 2012 at 7:37 PM

Ha, I read this after I commented above that I think I should do a full post just on emergency funds soon! Right now, honestly, even WITH all this blech, I’m still glad my emergency fund is where it is and no bigger. That’ll change as we get closer to debt freedom, for sure, but it’s kind of my own lottery. I want “enough” that I have some options, but I don’t want to be SO safe that I hurt my debt-payoff efforts just as we roll into the second of three phases of paydown, if that makes sense? (Obviously I’ll try to be more coherent in a post, LOL!)

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Joel November 28, 2012 at 11:08 AM

I have to say, first off, I’m really sorry – this kind of stuff stinks, and hopefully it doesn’t come in 3′s (you’re at 2)! That said, there are a couple things that stand out. One is that more debt solves nothing for you – especially when racked up on the old car. I buy cars for $2500-3500 and drive them for years. If there is a major malfunction, I seek out another older cream puff. You could buy a whole car for the cost of a trans. I checked around here, and I can replace a trans in that car for $1000 less easily. Shopping around makes a difference – it can be worth a tow to another shop to save money. I agree with your consolidation choice after executing the repair, but I’d never have added debt for a transmission at that cost. It’s your OLD way of thinking coming back!! I’m really glad you didn’t go with the $10K car. That typically is an even worse option!

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Joan November 28, 2012 at 5:35 PM

Shopping around was definitely key! We ended up happy with the choice we made specifically (in terms of the garage we used and the transmission we chose to put in), but those are exactly the right questions to ask… that’s the big takeaway for everyone, I think – is do the diligence! :)

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Dee November 28, 2012 at 11:32 AM

Great job Joan!

You really found the silver lining. May have missed it somewhere, but have you had the banks, cc co’s bring down your available limits? If not a quick call will get them to put it down to whatever you’d like, eliminating further temptations (a bit of a moot point for you as you really are on a roll – but maybe a tip for others), and reducing your overall “potential”? debt number that agencies look at to determine your credit.

Enjoy your continued success!

Dee

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Joan November 28, 2012 at 5:33 PM

Dee, our accounts are closed – except of course for this new one – but you’re right, that’s a great tip for anyone with an open account!!

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