upside down loan and balance transfers

[mleosu]

out of a moment of financial stupidity (and others would just say sheer stupidity) I bought a motorcycle. I knew when I was signing the loan that it was a bad idea financially... but didnt stop the process. Well, a year later, I dont ride it that much. Partly due to the weather: there's really only 6 months out of the year to ride comfrotably in texas - split between spring and fall. and also it's inconvienent with my life as I have to carry stuff w/ me - more than I can carry on a bike. The interest rate is ridiculous. Its around 11% I think. I thought about selling it and getting rid of the debt, and have even posted it on craigslist, but havent received any interest. Probably due to the price and the season. Problem is, I am upside down on the loan and I am not sure how exactly I would cover the difference if I did sell it.

Technically, I can still "afford" the bike, but it would be better to have the extra $200 to pay down the car, or student loans, or the house and work my way towards financial freedom. I wondered a couple things today... I have heard that the balance transfer game can be bad on your credit, but I read today it's another "it depends" situation... as much of life is.

Should I use a balance transfer to pay for the gap between the sale (if/when it sells) and the loan (estimating around a $2000 gap). The balance transfer would be a low interest rate, and if I dont pay it off before the promotional rate expires, I could always play the game and transfer it again.

Or, I could even pay the balance (around $6000) with a balance transfer. Again, the interest rate would be way better than 11%+ and like I stated before, I could play the game until it gets paid off... and if I sell it later on, the gap wouldnt be as bad, or I wouldnt be upside down.

I'd like to hear your opinions, but also what other information do I need to know if the balance transfer game would be a bad idea?

I have 2 credit cards.
CC A has an $8000 limit with a $900 balance.
CC B has a $3700 limit with a $600 balance.

So, unless I asked to increase my limit (CC A has reduced the limit since the downturn in the economy), moving the entire loan balance to a CC would near max out my available credit, whcih I think it a bad idea... but transferring the gap upon sale wouldnt be too bad.

I have looked at refinancing, but havent seen any good options for refinancing a motorcycle.

Suggestions?

[4jacks]

Hey ml, welcome to the boards.

First, I can relate, but not with so many digits. I went through a similiar situation about 3-4 years ago. I bought a used bike, then got one for the wife. Neither of us rode much at all, ended up selling them. etc. etc.

Buying a new Bike it's easy to upside down on it, all you have to do is take it off the lot. So here's my advice.
First you need to get on a Solid financial plan, no exceptions, you need to have a plan for your money.
Dave Ramsey, Crown financial and Suze Orman all have great seven steps plans, that pretty much everyone on this forum endorse. The basic premise is like this:
1) Save up $1,000 emergency fund
2) Pay off all consumer loans (Credit Cards, and other high interest rate loans)
3) Pay off your cars
4) Save up 4-6 months of living expenses emergency fund
5) Invest for the future
6) Pay off the house
7) Be financially independant

I know you are looking at steps 3-7 as a Pipe dream, I've been there. I was over $50k in credit card debt, thinking these plans were crazy. They work though.

So My advice, save a $1000 in a bank account somewhere, then breathe. Don't worry about the bike, don't pay extra on anything till that $1000 is in the bank. That is your emergency fund, use it in emergencies. (they will happen)

Now, lets talk about the Bike, at 11% you can probably consider that consumer debt. I think you need to sell the bike. You don't ride it, and your not talking about "Feeling the spirit of the road" when you ride. Bad news, you will have to pay the difference in the price of the bike and amount of the loan. I don't believe you can just use a credit card for that. Talk to your bank. Also most bike buyers want to purchase a bike free and clear, leave with the title, not have the seller say "Hey no worries, i'll pay the bank and mail it to you" So look into it, I believe you will need to complete the transaction at the financial institution that has the loan. So the buyer can leave will all parties signed off on the title.

What you may be able to do (So you don't have to save up the difference) is have your credit card issue you one of those Balance Transfer Checks, and use that. Once you do that, you have lowered your total debt, and moved the balance to your credit cards.

Now lets talk about the Balance transfer game. (And it is a game)
1) The credit cards give you great rates, counting on you to mess up, forget to pay, not be able to pay, or just be plain stupid, Then they hit you and make lots of money.
2) You can play the game, but you have to not mess up, not forget to pay, be able to pay, and not be plain stupid. You do all that for as long as you have the debt, and you walk out having saved some money.

That being said, you have to be very organized and very prompt. I played the game with a lot more money then you have in debt for a while. It was pretty easy, I read ALL THE FINE PRINT on the transfer balance offers, and I wrote in big black marker the date, the telephone number and the amount I had to switch and posted it on my Fridge. (my fridge is not cluttered) So it was very visible to me everyday.

I hope that helps, let us know how it goes.

[Jonathan K]

First you need to get on a Solid financial plan, no exceptions, you need to have a plan for your money.
Dave Ramsey, Crown financial and Suze Orman all have great seven steps plans, that pretty much everyone on this forum endorse. The basic premise is like this:
1) Save up $1,000 emergency fund
2) Pay off all consumer loans (Credit Cards, and other high interest rate loans)
3) Pay off your cars
4) Save up 4-6 months of living expenses emergency fund
5) Invest for the future
6) Pay off the house
7) Be financially independant - 4jacks

This is excellent advice. We went through the Dave Ramsey course (twice) and we are now debt free. We had credit card debt and a car loan. It is doable. It does require a plan.

As Yogi Berra said: "If you come to a fork in the road, take it."

Small decisions become a road you took (debt). However, good news is you can change your course today!

But more importantly Yogi Berra said: "If you don't know where you are going, you might wind up someplace else."

A man without a plan is destined to fail.

So My advice, save a $1000 in a bank account somewhere, then breathe. Don't worry about the bike, don't pay extra on anything till that $1000 is in the bank. That is your emergency fund, use it in emergencies. (they will happen) - 4jacks

Start your emergency fund today. Make a budget where you put everything on paper (or on the computer). Make sure what you make is less than what you spend. Use the debt snowball strategy to pay your debt off intentionally and with a sense of urgency! Pay your smallest loan first. Then use the money you paid every month on your first loan to pay off your second smallest next. And so forth and so on!

We have been debt free for about 8 months now. It is an amazing feeling to wake up in the morning and thank God for our His provision and our friends who told us about Dave Ramsey's 7 Baby Steps. It is amazing to have more than enough each month. To give God our tithes and offerings above and beyond the 10%. To be able to bless friends and complete strangers with giving. To save money every paycheck and not pay any interest or fees.

After saving up a little, this week or next week we plan to open up a savings account for our unborn son's college expenses. Amazing.

"But Jesus looked at them and said to them, “With men this is impossible, but with God all things are possible.” - Matthew 19:26

"And God is able to make all grace abound toward you, that you, always having all sufficiency in all things, may have an abundance for every good work." - 2 Corinthians 9:8

"Being confident of this very thing, that He who has begun a good work in you will complete it until the day of Jesus Christ;" - Philipians 1:6

Be encouraged! You are started on the right track - debt reduction. You are asking the right questions.

[Driver]

IMHO you should not finance toys. I know the temptation is there but things like motorcycles are toys. I think it would be wise to always pay cash for toys and if you don't have the cash for a big toy, reward yourself with a smaller toy instead or just keep saving.

As for the credit card game with balance transfers, I did that back about 10 years ago shortly after buying my first house and finding more bills than I counted on. I ended up getting a roommate in order to help me pay my bills and in the mean time I ended up at my peak with 11 credit cards and transferred balances from one special offer to another. I probably averaged 3% over a period of about 18 months getting out of debt. How'd I go in debt? I bought toys on credit. In my case, it was an autocross / time trial car and lots of go-fast parts. Seems like a familiar story for guys.

[Jonathan K]

IMHO you should not finance toys. I know the temptation is there but things like motorcycles are toys. I think it would be wise to always pay cash for toys and if you don't have the cash for a big toy, reward yourself with a smaller toy instead or just keep saving. - Driver

I agree. We do not finance anything anymore. We save up and pay cash. Usually you can get a discount when paying cash too. I hate paying interest.