How I Escaped My Expensive Car Loan

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So you decided to splurge. Against your better judgment you bought that expensive new car. Maybe you didn't realize how much it would handcuff your finances. Maybe you expected your financial situation to blossom. Or maybe you just couldn't let neighbor Bill be the only one with a new ride. Regardless of what led to this decision, you're finding that you just can't keep up with your loan payments, hefty insurance and all the other expenses of owning that hot vehicle. So what are you supposed to do now? Let's explore your options.

1. Suck It Up and Sell the Car

Most financial experts will say the smart move is to sell it. This is what I did when I was underwater on my first new car. Looking back, I should never have set foot on that dealership lot if I wanted to make a good financial decision. But that's not to say you and I can't recover.

Your car loses an estimated 11 percent the second you drive it off the lot. This is a big mental hurdle if you have to consider selling it. It takes a very strong person to push pride aside and downgrade your vehicle. There is a feeling of failure in not being able to keep the car and shame worrying what others would think. Plus, you'll miss the nice new car.

Why did I choose this option? I was beginning to get serious about my financial life. I had started my blog, and it was beginning to take up more of my time. I could spend more time working from my house and I didn't really need a car the way I did before. I sold it and got around on a bike for the next eight months, before finally buying the reliable 8-year-old Honda (HMC) I drive today. At first, it was a drastic change, living without a car. But eventually I developed a cyclist's lifestyle, and it saved me a ton of money.

2. Refinance Your Car Loan

When refinancing, you're basically shopping around for better rates from another lender. That lender will pay off your current lender, and then you'll go on paying for your car, just to a new institution. The hope is that you'll find a much better rate, and the money you'll save on interest will reduce your monthly payment.

When applying for refinancing, you'll have to supply basic financial documentation to your new financial institution (pay stubs and whatnot). They'll check you information and your credit scores, usually approving you immediately. Then you have only to accept or reject the deal and go on paying your current creditor until the account is switched over.

In my case, my car payments were just too high. Even if I had found a creditor who would save me $50 or $100 a month (hint: that creditor does not exist), I would still have been paying more than my financial situation could allow. It was hard to come to this conclusion, but I just had to sell the thing.

3. Cut Your Car-Related Expenses

If you are close to being able to make your payments comfortably, then you may be able to find some extra money without too much effort. Have you shopped around for insurance savings? I was surprised at how much we saved when my girlfriend and I just looked around for cheaper rates. If your insurance rates are elevated due to traffic violations and accidents, a defensive driving course can reduce violation points associated with your license, and your insurance premiums will be reduced as well.

4. Find a Secondary Source of Income

If you don't want to sell the pricey vehicle, your best bet may be to find more income. Just be sure the extra funds go to car payments, not other expenses. First, figure out if there's any way to earn more money from your current job. Maybe you can work overtime. Perhaps you can take on extra responsibilities that could result in a raise. Even just asking for a raise might work. Then there's the option to trying to find a higher paying job. If you've exhausted these options, how much are you willing to sacrifice? You're not going to let an expensive car eat up your retirement savings contributions. No, if you're keeping that car, you're going to sacrifice some of your free time and work your butt off.

While you could start some kind of side business, I don't recommend it in this situation, as 50 percent of all small businesses will fail within four years. You need more of a sure thing that is going to bring in money now. When you finish reading this post, start checking online job classifieds as well as the good ol' newspaper. Look for part-time positions with potential for tips and bonuses. Something like serving in a restaurant would be perfect. Even delivering pizzas in that nice car might work out. Don't overlook jobs as being beneath you or not in line with your career. You do want to keep that car, after all.

5. Slash Your Other Expenses

If you're anything like me when you splurged on a nice car, you probably don't watch your other spending closely enough. Any dollar that you can save on those expenses is another dollar to put toward your loan. If you can't make your payments, your credit will take a dive and your car will be repossessed.

Web and mobile budgeting apps are easy to find. Mint is popular, but it doesn't matter which software you pick. The important thing is to track and regulate your spending. Once you've established how much money you have, and where it's going, reduce spending in every area. A measure of objectivity will serve you well. Last week you may have felt like your spending is as low as it needs to be, but look at your restaurant and coffee spending. Any cuts to be made there?

If you're just unsure how to reduce spending, read personal finance blogs daily (DailyFinance, of course, has great ideas). You'll learn all kinds of creative ways to slash spending, such as saving on food, negotiating cheaper utilities and mastering coupons. Make a game out of saving money and see what new ways you can discover. It might even grow on you and help your finances long term.


You have to see where your finances and your priorities lie. If you are up against a wall, and you've purchased a car you can in no way afford, my advice is that you sell the vehicle. It's what I had to do in my younger days, and I'm glad I did it. If you can nearly afford your car, but not quite, look into refinancing, insurance adjustments, and additional income options. My personal feeling is that you shouldn't work around the clock to pay for a car. When evaluating your situation, look not just at your ability to pay for your car. Look at the car as one of your many financial goals: your retirement savings, investments, rental/mortgage payments. If you can find a way to make your car payments fit into your larger financial picture, keep it. If not, sell it.

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