How We Got Out of Car Debt
Do me a favor and drive though an average, middle-class neighborhood in your area. Maybe even your neighborhood.
Notice all the things with motors.Usually, I am not one for comparisons, or spending time dwelling on how other people live—but this is a great, early exercise in awareness.
Awareness that most families have a DEBT problem.
NGFI fun fact: Americans owe more than $1.2 trillion on auto loans, the highest in U.S. history. Auto debt has grown 75% since the end of 2009.Consider the cost of the two or more cars the average family has. Perhaps they even have a toy or two, like amotorcycle, RV, four-wheeler, or boat.
Does the sum of these items exceed the mortgage payment on the house?Where I live, the answer is often YES. And this is the biggest reason the middle class stays feeling broke and living paycheck to paycheck, despite above-average paychecks.
The sum of these depreciating assets can be greater than the house too! Gasp.
The wife has an SUV because you know, kids just couldn’t possibly fit into a sedan. The husband has a truck, a big one, because kids and hauling around the toys. Like the family boat.
I know because this was US.
- Find out how much you owe on the car. The first step is figuring out how big the mess is. This is a nerve-racking moment, but the starting point of all great debt-payoff journeys.
- KBB your car. You may even have to KBB (Kelly Blue Book) your car to see how much it is really worth compared to that remaining balance.
- Decide if you’re going to keep or sell. If you have equity in your car, or if your car is worth more than what your loan amount is, there are two options: Pay down the debt because you genuinely like the car or, get out of it and sell this depreciating asset.
- Bonus: What if I am underwater on my car loan? There are many wonderful resources all over the world wide web on how to manage selling your car if you are underwater. Underwater is a term us folks in finance use when you owe more than your car is worth. Basically, you can take out a loan to cover the difference on what you owe, or you can save up that cash and cover the difference in what you owe. Say you are like me, and you financed your car at a credit union. Go to that credit union, explain you would like to sell your car, pay them the cash, and then take our an unsecured personal loan for the remainder to be done with that debt. Remind them that the unsecured debt (aka there is not an asset that can be taken to pay off this loan) was already there, since the car was not even worth the money it would bring if the car was sold private sale (like on FB Marketplace, aka my favorite place to sell a car!).
Sarah Brandenberger is the founder of Nerds Guide To Financial Independence, a brand dedicated to showing that financial independence is possible through real estate investment. She began her debt free journey in 2017 and quickly became a voice for budgeting and personal finance information as she and her husband paid off over $100,000. They discovered real estate investing and now own four properties while helping others towards the path of FI.
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