Car Debts – Driving Away from Debt

Car debts often eclipse a person’s credit card balances by a long shot. It’s not uncommon to have $30,000 up to $60,000 or more in car debts.

Worse, monthly payments can exceed $1,000 a month — almost as much as a small rent or mortgage payment! This can put a huge strain on your ability to meet all your monthly obligations.

Obviously, if you can reduce your car payments or get rid of them altogether, then it will be better for you financially.

Pay Just a Little Bit Extra

One way to get rid of your car debts is to pay off your loans earlier than expected. It’s actually not that hard to do. Simply pay an extra $10 or $20 a month.

You won’t miss such a small amount of money, but your loan balance will step down faster. You may be able to shave off a few months of payments over the life of the loan.

Downsize Your Car

Probably one of the fastest ways to make your car debts go “poof!” is also the most difficult emotionally. That is to downsize your driving lifestyle.

Instead of driving a new Acura, sell it and get a used Honda. Instead of driving a new Lexus, sell it and get a used Toyota. Instead of driving a new Cadillac Escalade, sell it and get a used Toyota 4Runner.

You get the idea.

By selling one of your vehicles, you can instantly wipe out thousands of dollars in debt, maybe even tens of thousands of dollars. Then, when you purchase a used vehicle as a replacement, your car loan may only be one-fifth or one-third of the old loan amount.

This will not only reduce your debt, but reduce your monthly payments as well — both really positive things if you’re trying to become debt free.

Become a One-Car Family

For most of my 10 years of marriage, my wife and I (and kids!) have shared one car. This is not always possible, but we’ve been able to make it work during different periods of time.

If you have two car loans on two different cars… and you sell one car… you may erase half of your car debts in one fell swoop!

And I can tell you from personal experience that it’s WAY easier to take care of one car compared to two. It’s half the oil changes, half the repairs, etc.

Live Closer to Work

By living closer to work, you may not reduce your car debts, but you will save money on gas, insurance, maintenance, and repairs.

If you live close enough, you may even be able to ride a bike or walk to work. Or carpool.

Some brave individuals have moved closer to work and gotten rid of their cars for good. They use only human-powered and public modes of transportation. And it can work well for certain people.

Others who live in warmer climates may want to trade in their car for an inexpensive motorcycle or motor scooter. Again, this is not for everybody, but it works well for some.

Car Debts Be Gone!

No matter what angle you take, you can quickly get in a better financial situation by eliminating or reducing car debts. Thankfully, once you get over the emotional resistance you may have, it’s actually easy to do.

Here are the four strategies: Pay off your loan faster, downsize your car, become a one-car family, and/or live closer to work. Choose the approach that works best for you.

Banks Give Homeowners a Break

About 10 months ago I wrote a post about how some people who couldn’t sell their homes just stopped making payments. I also shared that my relatives who live in Phoenix were planning to do this. I wrote:

They plan to live in their current home for 3-6 months without making any mortgage payments. They will save up some money so they can move. When the bank finally approves them for a short sale — or gives them the boot — they’ll go get a rental somewhere else.

Here’s an update:

My relatives did indeed stop making payments on their mortgage in November 2008. They started getting nasty letters in the mail, phone calls, etc shortly after that. Fortunately, their realtor had prepared them, so they were expecting this and have seemed to handle it well.

Guess what?

It’s 11 months later… and they’re still living in the same house!!

In fact, we drove down to Phoenix this past April and visited them for a week. It was kind of strange at first because I wondered, “Could somebody show up at the front door and just decide to kick us out?”

Of course, that never happened. We had a great visit (with the exception of my youngest getting sick and vomiting).

It’s interesting to talk to my relative about their house. She’s very detached… and really doesn’t care about the house one way or the other. It’s almost like she’s adopted the mindset of a renter… but to a greater extreme.

She views the house as a place to live — but she definitely does NOT feel like it’s her home. And she and her husband are always waiting to find out when they’ll be forced to move.

Not an ideal way to live, but at least they’ve not had to make a mortgage payment or rent payment in 11 months.

You might wonder, as I did, why in the world a bank would let someone “squat” on its property for that long without making payments. Well, here is what I’ve discovered…

Many banks have bad mortgages on their books. But they don’t have to officially record those bad mortgages — they don’t officially get put on the books — until the bank forecloses on the property.

So here you have a lot of banks that are actually delaying or avoiding the foreclosure process so they can make their financial statements look better than they really are.

Crazy, huh?

The banks want to deceive the public, particularly their account holders and share holders, so they can continue to profit from deposits, transactions, and increase in share value.

And so banks are literally giving homeowners a break to maintain as long as possible the deception that everything is okay and the banks are doing well.

If the banks were dealing with only 10 or 20 foreclosures, this would never happen. But they’re dealing with thousands of foreclosures. The problem is so big they can’t deal with it — at least not all at once.

Anyway, that’s the update on my relatives. Still in the same house in Phoenix… still haven’t made a mortgage payment since November 2008. What crazy times we live in!