Can You Afford Your Car Payments? Can You Afford the House?

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One of the negative results of borrowing money and being upside down in debt is that there might come a time when you need to come face to face with some very tough decisions:

Can I afford to keep the house? Can I afford to keep the car payments?

The Danger of a High House or Car Payments

I live in a place that gets a lot of rain.  With rain comes mud, and with mud comes slippery roads.  I’ve had several times (fortunately not recently) where I’ve got stuck in a big patch of mud.  No matter how much I pumped the gas, I simply was not able to make any traction.  The tires turned, but the vehicle went nowhere.

The problem with a big house payment or expensive car payment is that you won’t have any spare funds to apply towards debt repayment.

Unfortunately, the issue with debt is that there is really no such thing as treading water.  If you are making minimum payments and have multiple debts, you are actually falling farther and farther behind.  You are not really making progress.  Something must be done, something drastic, something that will help you make some real progress getting out of debt.

Guidelines for Deciding if you Should Sell the House

When it comes to deciding if you should sell your house, you need we need to think about the issue in progressive stages.  As such, we need to recognize that there is a great place to be, an OK place to be, and a dangerous place to be.

In my opinion, when your house payments (including utilities, insurance, mortgage payments …) start getting above 40%, you are entering into a danger zone.  This does not mean you must sell the house, but depending on your level of debt and your spending habits, at 40% you definitely need to start paying attention to the cost of the house.

housezone

Conversely, the higher your house percentage, the less traction you will be able to get on your debt.  The less traction you get, the longer you stay in debt.

If you could sell your house at 40% of your income and rent a house or apartment at 20% of your income, think about how much faster you could get out of debt.

Guidelines for Deciding if you Should Sell the Car if You Can’t Afford Car Payments

Once again, we need to think about the decision to keep the car in terms of a scale.  The closer you get to the danger zone, the more pressing it is to sell the car.

car

If you put your numbers down on paper and they do not make sense, there is no way to keep the car.

The Value of Conservative Thinking and Conservative Math

By nature, I am a conservative person.

When I went the Grand Canyon, I didn’t walk right over to the edge.  I was comfortable staying away from the drop off point.

Often when people ask, “Can I afford … ” what they are really saying is how close can I get to the edge without having to pay the ultimate price? I think we need to ask ourselves why we are so anxious to get to the brink of our spending capacities.  What happens when the pipe breaks and you need to call a 24 hour plumber?  You’ll spend the whole time worrying how much this worker will cost.  That is way to much stress.  Personally I don’t want the stress.

Isn’t it possible we could be happier if we spent less and stepped away from the edge of financial suicide?  For this reason, I would always rather sell something than cripple my entire financial plan.

At what point do you think someone should consider selling their house or car?  How much is too much for car payments and house value?  Why do you think we always want to spend as close to our capacity as possible?

Comments

  1. says

    Craig,
    These are some great numbers. Im a bit curious about why your total car value shouldnt be more than 50% of your take home pay. (disclosure: I definitely have payments in excess of 20% and my car is worth slightly more than 50% of my take home pay).

    Just curious as to where you got these numbers.

    • says

      Jeff,
      Those numbers basically represent my experience with personal finance. I’m not sure if I read them anywhere. I looked at much budget and asked at what point would that % be too much. If I did get it from someone it how now sunk into my brain so I think it came from me :).

  2. says

    We have been blessed in that our last two cars we purchased for cash. They were both used, but still in good shape. We are committed to never having a car payment again.

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