Smart Money: Don't use sheltered money for short-term debt

Dear Reader: It likely will not pay to do this. Depending on how the automobile was financed, it may be that you have paid all the interest and are now paying down the principal. Furthermore, under any circumstance that I can think of, it would be unwise to disturb sheltered monies (such as an IRA) to pay off this short-term debt.

You knew what you were getting into and, as painful as it may seem, unless there are significant savings – which I doubt – I would continue under the present arrangement.

Dissecting documentation fees

Dear Bruce: I would like to know what the documentation fees are when buying a car. Do you have to pay them? Where I live, they are very high, and I think it’s ridiculous to have to pay them. —Reader, via e-mail

Dear Reader: These “extra” fees cover the miscellaneous charges, such as transfer of title, cost of the paperwork, etc., which will vary from dealer to dealer. Is it necessary to charge this? No. But someone is going to pay for it, and it’s just another way to pass expenses on while trying to maintain the lowest possible price. In the car business, dealers want to advertise the lowest possible number, but rarely is that number final.

One car too many?

Dear Bruce: My husband and I are debating whether to sell one of our three cars. I am trying to finish some postgraduate work and take care of our children. I’m not working full time. If we sell my car, we take a $4,500 loss and the balance would have to go to credit cards (interest rates from nothing to 12 percent). We would save money on insurance, gas and car payments (only 6 percent interest). What do you think is better – keeping the depreciated car or maxing our credit cards (which I know will drive down our credit scores)? —S.T., via e-mail

Dear S.T.: I am perplexed. Since you’re attending grad school and you have young kids, why do you have three automobiles for two people? I must assume the other cars are paid for; therefore this one would have to go to reduce the money going out every month.

I don’t see how you’re going to save anything on gas, because you’re still going to transport yourselves in the other cars. Insurance clearly is a factor, as is the car payment. Keeping the depreciated car, if it’s not paid for, is another matter. If the car is paid for, I would immediately take the hit. Now, it’s only a paper hit. However, if you’re going to have to raise $4,500 through your credit cards, then you’re going to have to run the math on that one. Over the long pull, I suspect you’ve put yourself into a ridiculous situation, with an extra car that’s hugely upside down. Take the hit, and swallow hard.

Understanding gap insurance

Dear Bruce: I am told I can protect myself from being upside down on a purchased vehicle by purchasing gap insurance. What is it, and is it a good idea? —H.T., via e-mail

Dear H.T.: Gap insurance is an acknowledgment by the automobile industry that it has been overselling for years, which can lead to the buyer being upside down, owing more than the car is worth.

For example, though, say someone buys a car and totals it after six months. The other guy’s insurance will pay what the car is worth, not what is owed on it. That’s all the other guy’s insurance company is obligated to pay. The difference can be substantial.

If you owe $10,000 on your car and it’s only worth $6,000, what are you going to do? You will have to come up with $4,000. Gap insurance pays the difference. The insurance can run from $400 to $700, and it can be an extremely profitable enterprise for the dealer. If it’s absolutely essential – and I mean absolutely essential – gap insurance may be worthwhile.

The reality is that if you require gap insurance, you are buying something you can’t afford.

Delving into new car history

Dear Bruce: I just purchased a brand-new automobile in February. My neighbor bashed her car door into my passenger-side door. I took it to a local body shop, which did a great job in repairing it, but a worker questioned me about the previous body repair work on the car. When I asked him what he meant, he explained there was previous damage; however, it was repaired very well. The dealer never told me this, and I am a bit upset. What can I do? —Miffed, via e-mail

Dear Miffed: I would be unhappy, too. However, you should understand that vehicles are often damaged prior to reaching a dealer or, indeed, damaged on the dealer’s lot. They are not going to junk them, so they will have them repaired. The questions – to which I have no answers – are: How much damage can be done before a dealer is required to convey this knowledge to a buyer? Is there legislation that requires a dealer to notify a buyer after a certain dollar amount of damage to a car? Are there other criteria that require a dealer to notify a buyer? I’m sorry I can’t be of more assistance.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.