Danielle from Houston called in to “The Ramsey Show” recently with a car problem that left hosts George Kamel and Jade Warshaw visibly stunned: she owes $65,000 on a used car that now needs a new engine, just a year and a half after buying it.
$75,000 For A Used Audi
“I’m in a little dilemma,” Danielle said. “I still owe about $65,000 on this vehicle that I’ve only had for a year and a half.”
The car? A used 2019 Audi Q8, purchased for around $75,000. It now needs a new engine, which she was told will cost about $20,000. Her extended warranty company is only offering $7,000 toward the repair. When asked why they’re only covering part of it, she said she had no idea.
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Adding to her financial strain, Danielle also has $32,000 in student loans and $2,000 in credit card debt. With no savings and a $65,000 annual income, her car payment is about $1,600 a month, with a 12% interest rate.
Warshaw couldn't hide her reaction. “Girlfriend, girlfriend, girlfriend,” she said, exasperated. “What were you thinking buying this?” Kamel added.
“Let’s just pretend this last year was gravy and you had no engine problems,” Warshaw said. “You’re just paying $1,600 a month on a $75,000 vehicle when you make $65,000.”
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A Plan To Rent The Car Out Fell Apart
Danielle explained that at first, she was renting the car out on Turo to offset the cost. But when her other car was stolen, she started driving the Audi full-time.
Insurance covered the stolen car, but she didn't get any money back because she still owed on it. “It’s not your first rodeo making bad decisions,” Kamel pointed out.
As for what to do now, Kamel broke it down into two possible paths: sell the car in its current state for around $30,000 and still be on the hook for $35,000, or come up with $13,000 to cover the repair bill and then try to sell it.
“On paper, option B is a better option,” he said. “They’re both terrible, but that’s a better option right now.”
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Kamel urged her to get the engine fixed by any means necessary, even if it means taking out a personal loan, then immediately sell the car–privately, not to a dealer. “Whatever you need to do to get this engine repaired, do that and then sell the vehicle immediately.”
Kamel laid out their rule: only buy used cars that are at least four years old, paid for in full, and worth no more than half your annual income. For Danielle, that would mean a car worth no more than $30,000.
“God bless the USA when we can be $100,000 in consumer debt, but we have great credit,” Kamel quipped. “I’ve got an 850, but I don’t have 800 bucks in the bank account, and I’m $100,000 in debt. That is the American way.”
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