Get Out of Debt, How To Get Rid of Your Car Loan

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There are a lot of people that would love to be debt free in our world today, but rather than visualizing how great it will be once that debt is lifted off their shoulders, they find themselves staring at the bills, unable to see a way out. They don’t know where to take that first step.

Baby Step Out of Debt

You have no savings, no extra cash flow, and there is no sign of a wage increase – you are stuck, and you have no idea how you are going to dig yourself out. I agree that this situation seems hopeless, but you’re going to have to face this situation sooner or later, right? So, let’s face it right now and baby step our way out of debt.

The Major Stumbling Block

Most individuals are willing to have a garage sale in order to get their debt snowball rolling, but I have seen one area in particular that is very sensitive for most of the population: their transportation. A reliable vehicle can be found almost anywhere in the world for less than $8,000, but those that have the greatest debts (and the smallest net worth I might add) always seem to be driving a $40,000+ vehicle! When they are confronted about their extravagant vehicle, some may actually admit that they made a mistake when they purchased it, but now that they have it, what can they possibly do? They still owe $30,000 and it’s only worth $25,000. If they sell it, they’ll still owe money on it, and they’ll have no car, and that’s not smart right? They need their car!

Let’s Get the Facts Straight

There’s a solution to every problem, but in order to find the solution, we must first have a solid understanding of the facts. We already gave a few of them in the example above, but we’ll need a few more.

· What are the payments? $500 a month

· How many months are left on the loan? 60 months(we’re assuming 0% interest for this example)

Let’s Solve the Problem

If you continue to make the payments on your car as they are scheduled, you will be in debt for the next five years. If you truly want to get out of debt, this should not be your number one option, so you need to sell the car. Also, be advised that if you do sell the car for less than what you owe, you will need to get an unsecured loan from the bank to make up the difference (to do it legally and to transfer the title properly).

Because I don’t know how feasible it is for you to walk everywhere without a car, I will provide three different options (and yes, each of them still involves selling the car…). By selecting any one of these, you can be certain to be out of that car loan well before the five year mark.

Option #1

· Sell the car at auction or by yourself

· Take the full amount (minus $1,000 for your temporary emergency fund) and put it toward
the remaining car loan balance ($25,000 – $1,000 = $24,000 toward the loan)

· Do NOT span out the remaining loan into smaller payments

· Continue to pay the $500 per month toward the remaining balance ($6,000)

· Drag that bicycle out of storage – it is now your main source of transportation

· With this plan you will pay off your car loan in one year

· Now that your car is paid off and you have no more loan payment, put the $500 extra a
month toward your next vehicle – this will buy you a nice $6,000 vehicle after only 1 year of
saving.

· If you are content with your bike, I would advise that you use the extra $500 toward your
debt snowball (if you still have existing debts)

Option #2

· Honestly, this is the same as option #1, but without the bike

· Some of you may live too far away to bike everywhere. This is where the bus comes in
handy (or train, subway, etc). The cost is very minimal, and it will take you large distances
in a relatively short period of time.

Option #3

· Sell the car at auction or by yourself

· Deduct $6,000 from the wad of cash in order to purchase a gently used car

· Deduct $1,000 to start your emergency fund

· Put the rest of the money toward the car loan (this should be $18,000 if you sold the car for
$25,000)

· Do NOT span out the remaining car loan into smaller payments

· Continue to pay the $500 per month on the car loan

· With this plan, you will be out of debt in two years ($500*24 months = $12,000 which is the
remaining balance on the loan)

Congrats! You did it!

If you follow any one of these three plans, you will finally be able to get rid of that pesky car loan. Also, I feel I should note that if you are able to utilize Option #1 or #2, you will not have to pay for car insurance or gas. Plus, you’ll never have that unexpected automotive expense! This is a great way to pay down those other debts at the same time you are paying off the car loan.

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