What to do with that expensive car note.
When you purchased the car you thought you could afford the monthly payments. Unfortunately, you were wrong. Instead, each month finds you struggling mightily to come up with enough money to make payments. Moreover, the costs for insurance, maintenance, taxes, and fuel are only exacerbating your financial situation.
Clearly, there must be a better way. Indeed, there is: you can get rid of a pricey car loan and do so without ruining your credit. Here are two options:
1. Sell the Car
If you cannot afford your car, then sell it. Ideally, you’ll find someone interested in buying your car, paying enough for it to cover the full debt.
If this person takes over the payments, that may not be enough, especially if you have equity in the car. Yet, if there are no other buyers interested, at least you’ll put the loan behind you and without damaging your credit. A financial loss is better than ruining your credit.
2. Refinance Your Car Loan
Perhaps what is hurting you has everything to do with the type of loan you took out: a short-term note with a high interest rate can push up your monthly payments. Fortunately, there is an option available to consumers: refinancing.
Just as a home can be refinanced, so can a car. But there is a big difference here: homes generally appreciate in value while cars lose value. There aren’t too many lenders willing to refinance, but if you come across some, then see if you can stretch out your payments by at least another 12 months and obtain a lower interest rate. Together, the two moves can lower your monthly payments.
Making it Affordable
Perhaps selling the car or refinancing aren’t viable options. In that case, you need to find alternatives to make your payments palatable. Therefore, consider the following three options.
1. Cut Your Costs
If selling your car isn’t an option and refinancing offers little advantage, then the best way to afford your car is to cut your other costs. Don’t slash your insurance as you’ll need that coverage to protect you in the event of a total loss. Keep up with your maintenance and repairs too.
As for your other costs, consider doing one or all of the following: lose your landline, cancel your cable service, avoid eating out, make your coffee at home, or lose the expensive gym membership. Evaluate your expenditures and find savings here and there.
2. Increase Your Income
Are you due for a raise? If so, use that increase to offset your expenditures. Avoid raising your living standard; devote the extra funds to cover your car costs.
If a raise is not forthcoming and a new job is not in the offing, look for ways to earn money on the side. Use your writing, coding, or other skills to make money. Devote the additional funds earned toward paying off your car loan.
3. Establish a Budget
Perhaps the biggest challenge for you is not fully understanding how your money is spent. Although “budget” seems like a dirty word, it has kept tens of millions of Americans out of trouble.
Making a budget is simple and there is an app for that. You’ll need to know how much you have (assets), what you currently make (income), what you owe (debt), your monthly payments (expenditures), and determine your net worth. Once you know how you spend what you earn, then you’re in a better position to control your costs.
The Bottom Line
If you sell your car, can you do without a personal vehicle for a while? If so, you stand to save a lot of money. Ride a bicycle, take public transportation, hail Uber or Lyft, or simply invest in a pair of comfortable walking shoes.
On the other hand, if you have enough money on hand to buy a used car, shop for one carefully. Make sure it is in very good condition and it doesn’t have the potential to turn into a money pit. Have a mechanic inspect it before you decide to purchase it.
Whatever decision you make, you need to verify that it won’t have any impact on your credit score. Ruin your credit score and you’ll create a whole new set of problems that won’t be easily rectified.
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