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Are you stuck in an upside-down car loan (owe more than it's worth)? Learn ways you can find money to dig out and escape!
Dealing with an Upside Down Car Loan
Julie wrote in with a frustrating and draining situation – being stuck with a bad car loan.
Neither one of us are financial experts, but we too had a car loan that we were just sick and tired of having and so we paid it off early.
Not only has it freed up money in our budget, but it's also taken some stress off of us as we have one less bill to worry about.
Here's what Julie sent in:
I currently have a $15,000, 6-year car loan for a 2011 Kia at an interest rate of 18%. I pay about $340 a month on the car.
I had considered refinancing it next year with the same company. I don't know if I would be able to go through a credit union or bank since my credit is so low.
After paying my bills and everything I have about $300 left over. I do have other debt I own my house and we pay on that every month. I have a credit card I pay $25 a month on it and the balance is $750 I really want to get this paid off by the end of the year. I have a loan but I only have three payments left till it's paid off.
I have a credit card I pay $25 a month on it and the balance is $750 I really want to get this paid off by the end of the year. I have a loan but I only have three payments left till it's paid off.
What is the quickest way to pay this off? Or what would you do?
So right off the bat, I see that in addition to the car loan Julie is looking to eliminate another debt. Good for her!
Options With an Upside Down Car Loan
First things first, whenever you have a car loan you're trying to get out of (upside down loan or not), you have to have all your numbers in front of you.
It can help you can make a decision that not only works for you but is in line with your actual finances.
Now with the limited information I have, the two options I see are:
Sell the Car
If at all possible, my advice would be to sell the car. The terms of the loan are horrendous and that lender is making a killing off of Julie.
Getting a ballpark figure from Kelly Blue Book, the car looks to be in the$11k range. That would put her in the hole for at least $4,000, not a great spot, but that's much better than $15,000.
However it would also mean not having a car, so that may not be an option right now.
Refinance the Car Loan
Julie expressed doubt that a bank or credit union would refinance with her bad credit.
It could very well be true, but based on the deal she got, checking with her local credit union or bank may give her relief.
She won't get the best rate, but it would most likely be much better than the rate she is paying now.
If Julie is still a bit reluctant to refinance because of her bad credit, she may want to pay off a few other smaller debts ahead of the car loan to get her score up. That could help her to refinance in the future and secure a better rate.
Starting a Debt Snowball
The good thing is that she has at least $300/month to use for paying off her debts. We'll start off with that amount and build from there.
I'll share things that have worked for us and hopefully will help Julie get some ideas on where she can slash her budget.
Hunting for Money in Your Budget
Instead of guessing where she can cut back or hunting through receipts to find all the money leaks, I'm recommending Julie use a free tool like Mint that will gather all of her expenses for automatically and in 15 minutes you can create a budget that will help you reach your goals.
We were able to significantly cut our auto insurance premiums by switching providers. By using our
By using our Costco membership our car insurance premiums went from $118/month to $58/month. Since we have Executive membership at Costco, we also get free towing and jump starts included.
If you're pressed for time, but still want to shop around for the best rates on car insurance you use Go Insurance Rates. It's extremely handy as you can get several quotes in
It's extremely handy as you can get several quotes in spot and it's free!
They have great coverage, phones, and plans at affordable prices!
Many times the deal they advertise on TV isn’t the best deal. The options are switching providers, dropping the service, or getting a promotional deal. When we were looking for a deal with our bundle years ago, we called Time Warner Cable to see if they could quote a better rate. Since they didn’t, so we went ahead and created
When we were looking for a deal with our bundle years ago, we called Time Warner Cable to see if they could quote a better rate. Since they didn’t, so we went ahead and created
Since they didn’t, so we went ahead and created our own bundle with Time Warner for limited cable and high-speed internet and used Skype for our land line number.
A few years later we managed to get a promotional deal on our internet services. If you're willing to talk a few minutes to talk with your current provider you can probably work out a better deal that what you have now.
Getting Rid of a Car Loan
While not all of these tips apply to everybody's budget, I think it can couples shave a bit off their bills and use that money to build up their debt snowball.
As always, I'm reaching out to those of you who have tips and advice that could help Julie get rid of her debt quickly. What changes have you made to pay off debt quicker?
* I changed the reader's name adjusted some details to maintain privacy.