hexrae

In today's economy, how are you handling your debts?

Without divulging specifics, I have a Credit Card, Credit Line, Mortgage and Vehicle Lease (until Nov 2009) to handle. I have a plan for the Card and Line, and my mortgage is variable so I'm benefiting from the reduction in prime rates.

Is it advisable to get out of my lease now (regardless of fees) and get a new one, or to wait it out?

- RS

PS: First time thread poster here, so mods move/delete as needed.

NoSoup

Unfortunately, without a lot more specifics, it's impossible to help guide you to the right decision.

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Lindy

In today's economy, I'm avoiding debt. I have an AmEx and a Visa that I pay in full every month, and a fifteen year mortgage that I refinanced last spring, now at 5.375%. That's all I have for debt. I have two paid for cars. I think that this economy has at least the possibility of depression and price deflation, and for that, cash is the best medicine. I'm not taking on ANY new debt.

I agree with NoSoup about the lack of financial specifics, but I think it would be hard to argue against the idea of taking advantage of the current low interest rates by moving into a fixed rate mortgage. But if you are overextended in other areas, it might be hard to refinance. The lenders that I know have gotten very choosy about who they'll loan money to. It looks to me like we are moving back to that old fashioned idea that the only people who can get a loan are those that don't need one.

I can see no advantage in paying penalties to get out of one lease in order to get into a new lease. All that does is cost you even more in depreciation. However, it might be an advantage to get out of your current lease and then buy some kind of car for cash. Not having the obligation of the lease might make you look more attractive to a mortgage lender.

Lindy

thingstodo

Unless you have an unusual lease there would be ne benefit to get out because you would still have to make all the remaining payments as a lump sum. It's not like getting out of a cell phone contract. The only other option is if your current value is greater than the payoff (the total of the residual plus remaining payments).

Interesting on the mortgage...I didn't know there were variable rates like a home equity line. No matter, I would kill myself to refi at a low 5% rate ASAP.

I assume you pay your cc balance in full at the end of evry month and use your equity line for any short term borrowing needs. I would never use a credit card for credit!!

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Martian

As has been said, it's impossible to provide specific advice for you. So, here's some general advice instead.

As a basic rule of thumb, debt is very rarely worth taking on. Those who find themselves chronically in debt do so because they have a habit of discounting the cost of borrowing. This is particularly pronounced when the repayment terms are such that they get a long reprieve. I don't know where it was so I can't cite it, but I recall reading a study wherein it was suggested that the farther away the repayment date is, the less likely the payments are to factor into someone's decision.

You say you have a plan for the credit card and LOC. I truly hope that plan is 'pay them off ASAP and keep them for emergency situations only.' Emergency situations being, you need to go to the hospital, not you need a new 40" plasma tv. The bottom line is that the longer you have a balance on those things, the more they'll cost you.

Ditching your lease for a new one is not worth it. You will very probably be heavily penalized, and may not see any difference in your monthly cashflow. There's no sense in that. Good, reliable transportation can be had for $5000; if we take that as given, a better option would be to wait out your lease and start saving your pennies and dimes so that you can buy yourself a nice used car when it's up. Alternatively, you can pay the residual and keep the car you have. Either way, you walk out of it with a car you own, and have one less payment to make each month.

If you need to take a small personal loan out to do this, by all means do so and pay it off as quickly as possible.

Leasing vehicles rarely works out in the consumer's favour, and in the current market the odds are stacked against you. Unless you need a new car (you drive 30 000 km/year and need the reliability, for example) there's no reason why you can't get by with a nice three or four year old Civic or Cavalier or (insert favourite econobox here). If you find that by November of 2009 you have enough cash in hand to pay for at least 50% of a newer and/or nicer vehicle, then congratulations! That vehicle is within your means and if you really have a burning desire to own it you may purchase it.

The mortgage isn't a terrible thing, since property is one of the few applications where taking on debt is always a good idea. In the immortal words of D'Mite, "buy some land, buy some land, fuck spinning rims!" However, you may want to speak with your banking officer and see about renegotiating into a fixed low rate to take advantage of market conditions.

And I guess that about sums up what I have to say. Look for ways to eliminate debt and increase longterm cash flow. Once your credit card and LOC are paid off, reallocating those monthly payments into a mutual fund, CD or similar financial product will really pay off in the long term. Alternatively, if you took on debt to purchase your car, use the payments to eliminate that as quickly as possible, and then start putting money aside for your next vehicle purchase.

Debt is a useful financial tool, but it's also a very dangerous one. Number one rule to financial success: don't spend money you don't have unless there's a clear long-term gain to be had.

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Speed_Gibson

an excellent resource that has helped quite a few people out there with debt management - Dave Ramsey's Financial Peace University

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Charlatan

The only debt I have left is my mortgage. I managed to consolidate all of my other debts and pay them off. I am in a saving period.

I still have credit cards but pay off the balance every month and don't spend more than I can afford.

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