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Ask Dave

Sallie Mae Vs. Selling the Car

Dave has a decision to make about the best way to get rid of his debt.

QUESTION: Dave from Colorado wants to pay off his $9,000 student loan. He asks Dave if he would suggest selling his car, which is worth about the same amount, to pay off the debt. He earns $70,000 a year. What does Dave suggest?

Dave's ANSWER: The two rules of thumb that I use on whether someone should sell a car are this: First, is the value of all of your cars and everything else with a motor in it like boats, etc. more than half your annual income? If it is, then you have too much of your money tied up in stuff that's going down in value. In your case, unless your wife has a very expensive car, that's not the case.

The second rule of thumb I use is: Can you become debt-free other than your home without selling the car in 18 to 24 months? Your answer is yes. I wouldn't sell your car. I don't see any reason to unless you just hate the thing and you want a different car.

But in this case, your car is very reasonable based on your income and the fact that you can clean up this student loan in about 10 months. I think you're right on track, and that's exactly what I would do.