How strong is your hunger to get out of debt? What are you inclined to give up, live without, or sell to meet that dream head-on? Would you be willing to sell your beloved car to bring your balance sheet back into the black? In most situations, selling your car and going without one, or replacing it with something less costly, can be a good way to pay off your debt finally.
To assist you in making this decision, assess how much your car is really costing you. To do this, you should think beyond your monthly payment. Sure, your payment might only be $280 per month; however, that does not include any associated costs such as car insurance, rising gas prices, scheduled (and unscheduled) car maintenance, parking fees, and any parking permits.
Based on where you live and what you drive, this can add up to quite a fortune every month. Is that amount hindering you from paying off your debt? If that is the case, consider selling your car. Or maybe trading that money would be the way to go for your finances. Whether or not this strategy makes sense will depend on your habits, car, and location.
Questions to ask before selling your car
Before you sell your car to get out of debt, ask yourself the following questions:
How much do you spend on maintenance, insurance, and gas?
All vehicles carry at least these three expenses. Some cars prefer to sip (such as hybrid cars), which indicates big savings for you at the pump, while others prefer gas guzzlers. Insurance can also be significantly more costly for let’s say a red sports car as opposed to a Volvo station wagon.
Another expense is maintenance that for some cars can be significantly higher than for others. For instance, does your vehicle require specialty dealer-made parts, or you have off-brands? Can you perform ‘Do it Yourself’ maintenance tips on your own? An analysis of these elements can help you determine how much your car is costing you and if it is worth giving up.
Do you still owe money on your vehicle
If you are only twelve months into a five-year payment plan, possibilities are that you owe way more on your car than a buyer would be willing to pay for it (that is upside down auto loan). The time you drive your new vehicle off the dealer’s lot, you will lose thousands of dollars in value.
Check out how much your car is presently worth on a site such as Edmunds or Kelly Blue Book. If you sold your vehicle, can you pay off the balance directly out of the sales prices? Or would you have to use your emergency savings to cover the remainder?
Or is the balance owed entirely above and beyond your ability to pay? If you cannot cover the remaining balance without borrowing more money, keep the vehicle, and make payments. With that said, keep your tabs on the value of your car vs. the balance on your loan. After you can come close to breaking even, can you consider selling your car again?
Do you own your car outright
When you own your vehicle outright ( that is, you have the title in hand), you can sell it for whatever the market will offer. Ask yourself if it is worth $5,000, and you sell it for that if you make a severe dent in your debt. You have to gauge the reward you get from paying down or paying off your debt against what you give up selling your vehicle.
If you have an extra car that rests unused most of the time or can carpool with your partner, it might be well worth it. However, if you give up your only mode of transportation of work, it is possibly a bad idea to sell your car.
Do you really need a car
In most states, you can live without a car because of the high-quality public transportation system, the bike lanes to ride your bicycle to work, the walkable commutes, and the constant availability of taxi cabs. Nonetheless, if you live in Los Angeles, you will find it hard to get anywhere without your car since the city is so spread out and public transportation is only accessible in select regions.
If you live and work in a state that encourages residents to be vehicle-free, you can try it for a while. And if you still occasionally require a car, check and see if your city has any car-sharing services. These services rent vehicles by the hour or even day and include gas, maintenance, and insurance for an affordable price.
If you still need a car, can you afford a cheaper one?
Let us say you sell your car and put the money towards your debt; however, you still need a car. Can you afford a smaller, less expensive car using the monthly interest you have saved by paying your debt? If you would have to borrow money to purchase a car again, think twice before selling the one you already have. However, if you can sell your car and pay off some debt with the proceeds, and you can still afford to pay cash for a cheaper model, you can consider selling.
What about lifestyle considerations
You do not want to discover too late that you require the gas-guzzling Suburban and can not get along without it. For instance, do you enjoy carting your son’s entire soccer team, plus gear, to various events and games? Or, do you perhaps need to transport huge loads that a 45 mpg vehicle just can not handle? Besides expenses, evaluate how you use your car and how or if you could live without it, or with something different.
Eliminating your car loan
Even though you did nothing else, getting rid of your car loan would free you hundreds of dollars per month. Granted, some of these savings can be used for bicycles, public transportation, and Uber. There is no doubt that you would save a significant amount.
Another advantage of eliminating your car loan is that it will help you increase your credit score in two ways- you will lower your total debt-to-income ratio. You will have the account labeled as paid in full, which will be considered positive.
Even though you are underwater on your car loan, the total amount owed is more than the vehicle’s value. You might need to consider a sale as it will free up money.
What if you do not have a loan?
Even though you do not have a car loan, you still may want to consider selling your car. The sale will provide you thousands of dollars, which can be utilized to pay down your debt, and you will also not have to pay for the operating costs of a car, which will save you hundreds per month.
Thus selling a car that you wholly own is a win-win situation. Just note that you will need to have a clear idea of how you will get around. Maybe it is by using your bicycle or carpooling. Either way, you should make excessive use of selling a car (more money) against the costs of using another mode of transportation.
What are your sale options?
It is possibly self-evident that if you are considering selling your car to assist you in getting out of debt, then you want to get the most you can for your vehicle. Thus the best sale options are either consignment or direct sale.
The advantage of direct sales is that you will get the most money. Nonetheless, you will also have to take the time to list your vehicle and to follow up on every inquiry from potential buyers. While selling your own vehicle consignment indicates that you are ceding responsibility for doing so to someone else.
Either way, you need to ensure you can get as much money for your car as possible. Before deciding whether a consignment or a sale are the best choices, you will need to look at what your vehicle is worth and the duration you think it will take to sell your car.
Living with debt is stressful- not only do you find yourself working to pay off your bills, but it is also hard to have a normal life. That is why to get out of the debt trap; an increasing number are looking at selling their cars. Often owning a car is more of a nuisance than anything else. This is particularly true if you stay in or near a city since you can select from a variety of mobility options. Do not forget the economic benefits since selling your vehicle can put thousands of dollars in your pocket, and this cash can be used to get out debt.
Thus, if you are really struggling with debt, then consider the option of selling your car.