Discover Debt Freedom!

We know that purchases are based on emotion, so it makes sense that sometimes people will buy vehicles based on their feelings about a certain type of car or a new car versus an older car, rather than by logic and what one could and one could not afford. Sometimes people lose their jobs, and can no longer make the car payment. They once could afford, but now they cannot. This situation can happen for a number of different reasons, but when you have a vehicle you cannot afford, you have to get out of it, and here’s how to do it.

How do I know if I can afford the vehicle that I have now?

Some people are in denial with their vehicles. They buy new cars because they think they need something reliable, but in reality they’re making ridiculous car payments upwards of $500 when their income just cannot support that. Dave Ramsey offers a great rule of thumb that everyone should follow. If your vehicles are worth more than half of your annual income, your cars are too expensive.

If you’re 1% or 2% over, it’s no big deal, but there are people that have $30,000 worth of cars and make that same amount each year, and that’s ridiculous! Cars are a liability, they go down in value. New cars are the worst offenders; they can easily decrease in price by 20% each year for the first few years. This depends on the make and model, but vehicles generally take the largest beating in value when they are new. This is why I recommend that one should never buy a vehicle that’s newer than two-years old.

What do I need to do to get rid of my vehicle and out from under this debt?

If you have discovered that you are in a vehicle that you simply cannot afford, you need to sell it. It’s as simple as that. Head on over to Kelly Blue Book, and look up what your vehicle is worth. Look up the private-party value, and that’s how much your vehicle is worth. Don’t sell your car to a dealer, because they will give you a wholesale price, and usually you can get 20% or 30% more by selling it yourself.

Once you know what your vehicle is worth, You’ll want to list your car in the classified section of the newspaper. You can also create signs and put them on cork boards around town. Don’t overpay and get your vehicle listed in some listing of used cars. The classified ads usually are more than efficient, and they’re really not that expensive.

Once you find a buyer, you’ll need to get payment from them. Make sure that the check clears before giving them the keys and the title, but once you have the money free and clear, give them the vehicle, as well as the title, and you’re golden. You’ll take the proceeds from sale, and give them to your lender to pay off your debt. Usually you are required to pay off the debt when you sell the vehicle according to the contract you signed with the bank or finance company.

What do I do if I owe more on my car than what it’s worth?

A lot of people that buy new vehicles are finding that they owe more on their cars, trucks, vans, or whatever than what they are worth. This means that even if they had found a buyer, they would not have enough money to pay their loan off, so they can’t sell it. The reason this happens is because the rate at which new vehicles depreciate is often greater than the rate at which people pay off the vehicles, giving them negative amounts of equity.

In this situation, you’ll need to head down to your local bank, or credit union, and get a small personal loan for the difference between what the vehicle will go for and how much you owe on it. Put that money with the money you earn from the sale, and use that to repay your debt. Some banks may say no to you, and you have to accept that it will happen. Chances are that there is a bank or credit union out there that will loan you the money, and you just have to be determined, and you should be able to find a loan. If you can’t find one at all, you might consider checking out Prosper.com.

When you get your small loan to pay off your vehicle, you’ll still be in debt, but the debt that you will have after selling the vehicle is a lot less than what you had if you kept the vehicle. It makes sense that it’s better to be in $3000 of debt with no car, than $20,000 in debt in a $17,000 car that’s going down in value dramatically.

If I sell my vehicle, what am I going to drive?

When you sell your vehicle, you’ll still need something to drive. You will have to pick-up an inexpensive vehicle to drive around until you can become more financially stable again and afford to pay for a decent newer vehicle. Look for a $1000 or $2000 car that’s older, but mechanically sound. Look for a vehicle that has a low number of miles. The appearance of the vehicle does not matter, just get something that will move you from point A to point B.

Should I really sell my car?

If you are driving a vehicle that you can’t afford, you’re going to get behind on the payments sooner or later. The bank will come reposes the vehicle from you, sell it an auction for less than wholesale prices, and come after you for the difference. It’s much better to get rid of your over-priced car yourself than let the bank do it for you, because then you get to determine how much your vehicle sells for, and will be able to get a retail amount for it rather than sub-wholesale prices.