Creative Ways To Get Out of an Upside Down Car Loan
Great picture isn’t it? The car seems to be confused as to which end is up. Similar to how people feel when they have an upside down or underwater car loan. Upside down or underwater car loans are ones where you owe more than your car is worth.
Car dealers will make you believe that you have to get a new car and roll that negative equity into another loan. Oftentimes this not only increases your payments, but increases the amount of time you are paying for the car. This will continue to happen each time you want to get another car. Rather than the Dave Ramsey Debt Snowball to eliminate debt, you are snowballing debt the opposite way. I have had clients tell me that their car payments are close to $900/month! How are you ever going to get out of the cycle if you don’t nip it in the bud now?
Below are a few ideas to get your creative juices flowing:
Suggestion #1 - Sell Your Other Car
This suggestion only works if you have another car with some equity or it is paid off. Let’s say you have a car with negative equity of $8,000 and you have another car that is worth $15,000 and is paid off. Sell the $15,000 car and pay off the $8,000. This would leave you with $7,000 left. You could either buy a $7,000 car and make due with one car, or buy two cheaper cars.
Suggestion #2 - Get A Personal Loan
While I normally would not recommend getting additional debt, the upside down cycle has to stop. Go to your local credit union or bank and apply for a personal loan for $10,000, pay off the $8,000, and use the extra $2,000 to buy another car. You can use your paid off car as collateral for the personal loan, which may get you a lower interest rate. Then work with gazelle intensity to pay off the personal loan.
Suggestion #3 - Keep the Car
Keep the car until you save enough money to make up for the difference and then sell it yourself. You could also just ride it out and keep it until it dies. After you have money for the negative equity, you will need to evaluate if it makes sense to sell the car and use the difference to pay off other debt.
Get an extra job, sell some stuff, or rent out a room in your house to get the debt snowball rolling the right way.
Many people “need” a new car and come up with all kinds of excuses as to why they can’t drive something cheaper. I have found that getting out of underneath this negative equity is one of the quickest ways to get ahead and be able to make some significant strides towards your debt snowball.
A few tips:
Going to a car dealer to sell your car will get you less money. Always use online resources to determine the value of your car and try to sell it yourself through Craigslist or a local Facebook Buy/Sell group.
Spend some thinking of creative ways to get out of an upside down car loan. Have a brainstorming session with a spouse or friend. Write down all ideas whether they seem crazy or not.
Don’t go to a dealer and rush into something. Keep in mind…the salespeople want you to buy that new car!
Read this article from Lending Tree called “How to Get Out of an Upside Down Car Loan” explaining how to avoid getting into an underwater car loan.
