How to Get Rid of Car Debt

A car payment can take a chunk of your monthly income, so many people look for ways to get rid of their car debt. The average car loan has a 5-year term. However, you can choose a shorter or longer term, depending on your financial situation. Of course, the longer the loan term, the higher the interest payments. Hence, you're likely interested in ways to reduce your total payments (including interest) and keep more money in your pocket.

Difficulty: Moderate

Instructions

1. Sell the vehicle. If you can no longer afford your automobile, sell the vehicle and use the proceeds to pay off the vehicle loan. Contact your auto lender and inquire about a payoff balance. Next, place a classified ad online or in the paper, or put a "for sale" sign in the vehicle's back window.

2. Increase your payments. To quickly eliminate car debt, consider increasing your monthly payments by $50 or more a month. This maneuver can knock a few months off your loan term. If you have the disposable income, double your monthly payments. This way, you're able to reduce your loan term by half and get rid of car debt sooner.

3. Refinance the auto loan. A refinance can shorten your loan term, which lets you pay off the car loan early. Unfortunately, this also involves higher payments. Another option: Refinance and get a reduced interest rate. A lower rate decreases your monthly payments. Rather than pay the reduced amount, continue paying the higher amount and eliminate the loan sooner.

4. Do a voluntary repossession. If you can't afford your auto loan payment and you can't find a buyer, consider a voluntary repossession. This involves returning the vehicle to the dealership. In turn, the dealer sells the vehicle at auction to pay off the loan. While convenient, a voluntary repossession damages your credit rating. And if the vehicle sells for less than the balance you owed, you're responsible for the difference.

Tips & Warnings

• Check and see if the auto loan is assumable. If so, someone can take over the loan payment and take possession of the vehicle.