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- [00:03]
A
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- [00:07]
B
My question is, I have paid off all my debt in step two, but the problem is I got involved in a lease for an H vac system. The total cost of the system, when paid off at 10 years, will be over $62,000. So I'm wondering, do I pay it off using the debt snowball method, Just get out of it, meaning I'm responsible for all that, or just leave it until I do the house stuff?
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A
Wow. Okay. I didn't know you could do a lease on a heat and air system. That sounds like. Sounds like you got Attorney General.
- [00:44]
B
And I went through Better Business Bureau, and the Attorney General Consumer Protection Department said it is legal. It's being done all across the US So.
- [00:54]
A
Yeah, but it's so bad that they. Yeah, it's horrible. Okay, so a lease typically. I have no idea in this case, but typically would have an early buyout provision, because leasing is simply financing in.
- [01:11]
B
Early buyout is termination.
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A
Okay. What does it cost to terminate it?
- [01:17]
B
The cost of the whole contract. No, what you have remaining. Yes. Yes, Sir.
- [01:22]
A
No.
- [01:23]
B
Yes, sir. 47. Right now, my lease buyout would be about $47,000. I paid. I've paid 15 now.
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A
You had an attorney look at that part also, right.
- [01:36]
B
I'm getting there. I. Right after I did the system, I got diagnosed with cancer. So I had. I got kind of sidelined for a few years. Now I'm like, wait a minute. I don't want to keep doing this. This is the. This is thievery. It's theft.
- [01:51]
A
Wow. But, okay. Cause, I mean, I know a lot of equipment leasing, certainly car leasing, and I've looked at the contracts on all kinds of leasing deals, even employee leasing they have out there now, which is really strange. And every one of those have a buyout provision that is less than the total of payments because you're giving them their capital early. You're giving them their money early. And so they're not collecting interest, so to speak, even though it's not technically an interest rate. And so almost every one I've ever seen, but I've never seen a heat and air one. So I don't know. My God. Honey. All right, so let's do two things. Number one, I want you to reinvestigate that part of it.
- [02:43]
B
Okay.
- [02:44]
A
Because as suspect as this whole thing, is that part of it. Suspect. So. So if the total of your remaining payments is 47, a normal buyout provision would put you somewhere in the 30s and the way you would do that, if that's the case, is instead of paying them in advance, like double payments, like you would on a debt snowball, you simply save the money up. You pay yourself into a savings account and then write them one check if there is a discount for early payout. Okay. And there typically is. If there is not. Either way, what is your income?
- [03:25]
B
I just retired from Federal Service, so my income is roughly 2,400.
- [03:30]
A
Okay, this goes in baby step six, then. Because it is the equivalent of a second mortgage. And it's a lien on your house, because it's a lien on your heating and air system. And you would pay it off in baby step six when you're paying off the house.
- [03:48]
B
Okay.
- [03:49]
A
What is your interest rate on your home?
- [03:52]
B
2.25.
- [03:54]
A
Yeah, no bueno there. We leave that alone. Okay. Because if you had a higher interest rate, I would suggest refinancing and taking them out.
- [04:03]
B
Okay. My mortgage balance is 169.
- [04:07]
A
When you get to baby step six, you knock out the lease first. Either way, whether you get a discount or not, because it's more than half your annual income. When a home equity loan or a second mortgage of any kind is more than half your annual income, we move it to baby step six. Yeah, I've never heard of such a thing. I'm just. Now, there's a lot of things that I get on the show that this is where I learn about it. And then I have to go look it up later and go, oh, it is a thing. So you know what else? I didn't ask. She said, federal employee. Clarksville is a base. Military base. That's right. So these may be morons that are preying on our military people. Yeah, that's big. That's. Which makes us, like, double a double negative for this company that does that. So if your son is out there, mom, and. And his new job is selling heat and air leases, tell him don't be a crook and go do something else with his life. Oh, there we go. There you go. I helped with that. Yeah, Just throw a dart out there into the universe and see if we can hit a balloon. Why not? Yeah, man. Oh, man. Cause I did have that happen one time. I was ripping on the payday lenders at 800%. Oh, gosh. Yes. And a lady called and said, well, my son owns two of those stores. And I said, well, tell him to sell them and quit being scum. He's ripping off poor people. He's oppressing the poor. Read about what happens in the Bible, when you do that, it's not good for you. It's not a place you want to be messing with widows, orphans and oppressing the poor. These are not three things you want to do in the Bible. And. And really just as a matter of living your life properly. Hello. But yeah, they're scum. There's scum. So, yeah, it shouldn't be. Don't be scummy. And then you're safe on the show about you. We won't talk about your kid, we won't talk about you. We won't do any of that. Yeah. So interesting to side note, the lease on a car, and I suspect it's true, on a heating and air system, is the most expensive way to operate a vehicle. Several publications, including Ramsey Research, have done detailed research on this. And when you run the math out. So you can take a financial calculator and say, this is what the MSRP is on the car, which is what it's calculated on. Here's what the buyout is at the end of the lease. A closed end lease always has a number. After three years, four years, seven years, whatever it is, you can buy the car for 12,000, but it was a $64,000 car, or whatever it is. So you've got those two numbers and then you have the number that is the monthly payment. When you put those into a financial calculator, you can figure out what the effective cost of capital is. That's a fancy way of saying the interest rate. However, interest rates are not disclosed on leases like they are on car loans. Because the Federal Trade Commission requires they hand you one piece of paper with your APR on it. Even if they're screwing you, they have to hand you that piece of paper. And you'll look down and you'll see 38% or 28% or 12%, you'll know you got subprimed. Right. On a lease, you don't have to do that because lease is not technically borrowing money, but you can run out, but it is borrowing money. So that cost of capital, there's no cap, no cap at all, and no knowledge of what it is unless you know how to run a financial calculator. And I've done it on probably 40 or 50 leases over the years. Every time I do it, it comes out between 14 and 17%. And so those of you that are, I got my BMW on a lease because my accountant said that was the smartest way to do it, you're an idiot. You got hammered. You're paying 17%. You should fire your accountant and get rid of your Beamer. You're getting hammered. But you never did any math. You just thought you were sophisticated. Geez. No. You wanted a Beamer. That's what it was. And there's a way to get a Beamer. Very little down. A lot a month. And very little at the end. Yeah. This is the problem. Create your free Every dollar budget today. The simplest way to budget for your life.