Many people take out a loan when they purchase a car. After a while, paying off that loan becomes tedious, especially if you purchased an aging car that’s starting to require repairs. If you want to break the cycle of vehicle debt and ditch your car loan, here are three tips that will get you on the path to debt-free vehicle ownership.
Make Your Vehicle Last While You Save
The best way to break out of the loan cycle is to take the best possible care of your current car and pay down your debt as quickly as you can. Once you are done with the loan, instead of purchasing a new car, continue to make the payment to yourself into a savings account so you can accumulate enough for a hefty down-payment or even enough cash to pay for your next vehicle outright. This is the most effective way to ditch your car loan.
Cut Out Extra Spending
Stop Drinking Coffee. Cut back on entertainment expenses. Consider eliminating cable in favor of streaming. There are many options to finding extra cash in your budget each month that will allow you to chip away or ditch your car loan. What can you sacrifice to be free of that vehicle payment?
For example, depending on where you buy your morning coffee each day, you could save at least five dollars and as much as $30 a week. Give up the coffee and put the extra money into your loan payments. Just make sure that you include a note stating that the extra amount included in your check is to go toward the balance on the loan. If you pay electronically, set up an extra payment each month. You should be able to pay at least an extra $20 and as much as your budget will allow each month to pay your loan off early.
Refinance to Lower Interest Rate
If you have reasonably good credit, refinancing at a lower interest rate could be the right move. Be cautious, however. While you might be tempted by low monthly payments, you could end up with smaller payments that extend the life of a loan and lead to negative equity.
If you can find a lender offering considerably lower interest fees on car loans, it might make the switch and lower your payments, which will allow you to put extra money each month towards the principle of your loan instead of interest. Each time you pay extra money on your car loan, you reduce the number of days remaining before the loan is paid in full.
When making a decision about how to ditch your car loan, it’s important to avoid being impulsive. Trading your vehicle in may get you a new set of wheels fast, but it doesn’t get you out of repaying your debt. Rather than search for a quick but costly solution, consider all your options to find the best repayment method for you.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.
Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY