While you shouldn’t buy anything you can’t afford, plenty of people will tell you things don’t always work out that way. Perhaps you hadn’t calculated your ability to absorb the item’s cost, or maybe your financial situation changed shortly after making a large purchase — regardless of what got you into this pickle, you have to figure out how to make it work.
Sometimes, it’s as simple as returning the goods, but that’s not always an option. For example, say you bought a new car, and after a few months, you realize the payments are too much to handle, with all the other expenses you have. Cars depreciate quickly, leaving you with little hope of recovering what you’ve spent and little time to decide what to do.
Cut Out Extra Costs
The first thing to do is try to make your situation work. You may have tried to make adjustments, but you have to take a hard look at your finances and possibly cut out expenses you may want to keep but are ultimately dispensable.
“When people don’t actually look at their expenses, there’s actually a lot of room to reduce things,” said Eric Roberge, a certified financial planner and founder of Beyond Your Hammock. “If you reduce your expenses, that car you thought was unaffordable might actually be affordable, for the time being.”
Presumably, this car is your main mode of transportation, so keeping it and making it affordable is a top priority. If there’s no way you can sustain the monthly payments and meet your other needs, the car may have to go.
Try to Sell it Yourself
If you decide to sell the car, you’ll probably make the most money by doing it yourself, said Kendra Hudson, a certified financial planner with Woodward Advisors in North Carolina.
“Get on Craigslist, take some good photos of the car and see how much money you can get for the car for yourself,” she said. “You’re cutting out the middle man — you’re selling it directly to a person and getting the money for yourself.”
The sale won’t likely cover the remaining balance on the loan, but you can work to get rid of it faster. Depending on your auto loan interest rate, you may want to consider taking out a personal loan with a lower interest rate to cover the remaining balance, Hudson suggested. With any loan, auto or otherwise, a high credit score is likely to get you a lower interest rate, so before you apply for anything, make sure you know where you stand and shop around for competitive rates. You can see two of your credit scores for free with updates every 14 days with Credit.com.
Of course, selling the vehicle leaves you without a car and a loan to pay off. Before you post your expensive wheels to Craigslist, make sure you have a transportation plan, whether it’s purchasing a much less expensive vehicle, opting for public transportation or riding a bicycle to work.
Roberge and Hudson agreed that a direct sale will be more financially productive than trading in the vehicle at a dealership, but that’s certainly an option, as well. Whatever you do with the vehicle, make sure you understand your financial responsibility going forward so you don’t end up with unaffordable debt.
More on Auto Loans:
- Are There Car Loans for People With Bad Credit?
- What to Do If You Can’t Make Your Car Payments
- Top 5 Worst Car Buying Mistakes