Should I use my tax refund to sell my truck?

Submitted by Hopeful_Promotion940 t3_z72rhu in personalfinance

I’m expecting about $15,000 for my 2021 tax refund, which is very close to how much I’m upside down on my truck. My monthly payment is $750. Should I use my refund to sell the truck, pay off my credit cards in full, or something else?

I have roughly $8,000 in credit card debt, and the payments are roughly $600 per month.

My thought process is that if I were to sell the truck, I would also save on gas and insurance, however, I would need to buy another vehicle. I would buy and older, used car which would theoretically be a lower payment, more fuel efficient, and cost less to insure.

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MightyMiami t1_iy4dvii wrote

It doesn't really depend so much on the payment amount, but rather how much you are paying in interest.

I am making the assumption the CC debt is high-interest debt, so that needs to be paid off first.

The REAL PROBLEM is how the heck are you getting a $15,000 tax refund. You need to really figure this out. You should be as close to $0.00 refund as possible. Otherwise, you're just giving the government money to hold interest free, while it loses value to inflation.

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Dinx81 t1_iy4d46b wrote

I would think paying off the cc debt would be better since you won’t get another car for only 150 per month. Eventually you can trade the truck in and owe nothing. This of course depends on how much interest you are paying on that truck.

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nolesrule t1_iy4ctpb wrote

Ask again when you actually get your refund. The numbers will have changed by then unless it's coming before the end of the month.

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alexm2816 t1_iy4dqca wrote

It depends on the interest rate of the loan and also what you expect in terms of depreciation/fuel savings by changing cars.

If you owe (for extreme example) $15k more than the truck is worth but are paying .9% interest then the 'hit' already came and you'd be better served making payments on this while aggressively tackling your high interest debt. Reducing fuel costs is great but even if you drive 1500 miles a month and go from 15 mpg to 30 at $4 a gallon you're talkking $200 a month which is potentially less than you'd be paying in interest on $15k on credit cards.

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BitterPillPusher2 t1_iy59047 wrote

Pay off the credit card. Then take the other $7,000 and apply it to the principle of the truck. Then take the $600 you were paying towards the credit card each month, and apply it to the principle of the truck each month (in addition to the regular monthly truck payment). You will no longer be upside down on the truck in pretty short order.

And don't ever put yourself in a situation where you will be upside down on a vehicle again.

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