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Ask Dave

Determining When To Sell

Josh wants to know when he knows that it's time to get out of his car loan.

QUESTION: Josh has 2 cars. One is paid off and he owes $23,000 on the other car loan. He is going to sell that car, but no one wants to pay what he owes for it. He has some cash saved up and makes $60,000 a year. Is there a mathematical equation to tell him at what point he should sell it short and get out of the payment?

ANSWER: There are 2 things that I look at as a measure of whether I have too much car. If you love it and can be debt free of it and everything but the house in 18 to 24 months, I’m cool with keeping it. The second thing is that everything you own with a motor in it should not equal more than half your annual income. The reason is that all those things go down in value, and you don’t want your money tied up in them.

With your income, you aren’t out of line with the car loan, and if you can pay it off in 18 to 24 months, then do it. If you don’t want to fight that battle, sell the car and write a check for the difference.