Car payment too high

Dave and Pauline (not their real names) emailed me with a
question about getting out from under a high car payment. They are paying
$721/month on one vehicle! They owe $20,000 on a vehicle worth about $11,000
and have three years of high payments left.

Ouch! Unfortunately, car payments the size of our parent’s
mortgages are not uncommon these days as vehicles get more
expensive, car loans get longer, and financing become easier.

What can Dave and Pauline do? I addressed their situation in
detail on my radio broadcast on EverydayWealth Radio, which you can listen to
online here. But here is a
quick summary of options for consumers when their car payment is too high:

• Refinance
  the vehicle:
  Go to Credit.com for a quote.
• Work
  things out with the lender:
  Talk to the current lender to try to arrange something that will lower your
  payments. The downside is you may be stuck with the car even longer and get in
  deeper with a longer loan. If you go this route, be polite but persistent. 
• Turn
  in the keys.
  With a voluntary repo, you give back the car. They will sell it at auction,
  probably get a lot less than a private sale, and you will be assessed a
  deficiency for the difference.
• File
  for bankruptcy.
  Under the old law, you could work out an arrangement to pay off the car at its
  current value, rather than what you currently owe on it. Under the new law,
  though, you will likely have to pay off the entire debt if you have owned the
  car less than 2 years and 4 months.
• Sell
  the car and pay off the difference with an unsecured loan like a balance transfer from your
  credit card, loan from a relative etc. This may not always be the most
  attractive option, but sometimes it can save you from a repossession. Be
  careful, though, about just continuing to dig that hole deeper. (You can run a
  what-if scenario in the EverydayWealth Wealth Planner and then create a rapid repayment plan for
  paying back that debt.) Again, with limited borrowing options it will be tough
  here.

Of course, the best advice is to be very, very
cautious when buying a new car. Buying the maximum you can afford can be risky!

Tagged as: Auto Loan, bankruptcy, car, credit report, forclosure, lender, reposession, vehicle

Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.comTalk Credit Radio. Reach Gerri at creditexperts@credit.com.