Jean's Blog

It’s The Principle Of The Thing

Posted by Jean

What’s $7? Enough, evidently, to get me taken to task by my pals David Bach and Carmen Wong Ulrich on this morning’s Today. This was the question from JP in Odessa, TX:

“I want to refinance my wife’s car and her current interest rate is 7.4%. I am the cosigner for her. If we refinance her car, will that lower our credit score? We only owe $15,000 which is less than the car is worth. The reason I am asking is that we plan to purchase our first new home this year.”

I said yes. A car refi is a a no brainer of a transaction. It costs about 15 dollars and takes about the same amount of minutes. I also checked with the credit bureaus to make sure that this swap would not affect JP’s credit – something I would not want to happen in light of his desire to go mortgage shopping soon. They assured me it would not as long as he did the shopping within 30 days and replaced the loan with another the same size.

The others on the panel? They disagreed with me. It’s only $7, David said and Carmen agreed.

They’re entitled. But let me explain why they’re wrong.

It’s $7 in month one. But:
Pay off that car over 36 months and its $252.
Pay it off over 48 months and it’s $336.
And pay it off over 60 months – as many people do with their cars – and it’s $420.
In other words, it’s a car payment in and of itself.

By my calculations spending an hour to earn or save $7 may indeed be a waste. But spending it to save hundreds? Not so much.

And then there’s the principle of the thing. Either you are a saver or you’re not. Why is it worth it to spend your time clipping coupons to save $1 on Tide, or shopping around to see which gas station along your drive to work is the cheapest, or teaching your kids to put the time and energy into putting some of their birthday money in the bank when you’re not willing to do it yourself?

I’m pretty convinced I’m right. Readers, what do you think?