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How Do I Get Out From Under This Car and Get One I Can Afford? – Marko

I owe $19,000 on my car but according to KBB its only worth $12,000 on the low end for a trade in. The car has about 120K miles on it and im worried it might break down and cost a lot to fix. I’d like to downgrade to a Honda that costs about $20K and has low miles and is reliable. I don’t know if a new or used car would be my best bet, but I was originally leaning toward a used one simply because I can get one with low miles that is a nicer model. I’m not sure if I’m better off getting a new car with a lower interest rate or a used car with a higher interest rate, even though San Diego Credit Union has some good interest rates on used cars.

In about 3 months I will have $7K cash that I theoretically could use to pay down my current car, but I’m not sure if thats the best thing to do with that money. Also, I can afford to pay more monthly on my current car, I can comfortably pay $1000/month towards it. I usually pay more then the minimum, but only about $50 or $100 more.

My goal is to lower my monthly payment, it’s currently $712 and am looking for something closer to $400/month.

My credit score is decent, its around 660. I’ve never been late on my auto payment for the past 3 years and I also pay all my bills on time. The only thing really hurting me is that I have two credit cards that have a high balances. One of them has a $3K limit and I owe $2800, the other has a $2500 limit and I owe $2100. Would that $7K be better off going towards this??

Given the information above, what do you think my best move is to get into a used or new car with low miles that is reliable while keeping my payments around $400/month?

The other reason I’m trying to lower my monthly payment is because my fiancee and I would like to buy a house in a year or so and I can really use that extra $300/month towards a mortgage instead of a car.

Thanks,
Marko

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Robertplattbell

    Ouch. Your finances are in a shambles and no, a 660 is not a good credit score. 830 is.

    You are “upside down” on your car because you paid too much for it. Buying new cars is a sure way to middle-class poverty. And most middle-class people do this over and over again, buying or leasing one car after another and spending every dime they make.

    If you want to get ahead of the game, you need to KEEP a car, pay it off, and then OWN IT FREE AND CLEAR for a number of years – like a decade or more.

    How you got into a situation of owing $19,000 on this car is beyond me, but you are in it now, so don’t make things worse by “churning” your car inventory into something else.

    A car dealer will be all too happy to bend you over the desk AGAIN and “roll over” the negative equity you have in this car into another one – at a staggeringly high interest rate. You will be right back where you started, owing more on a car that it is worth with even higher monthly payments (not to mention insurance payments!).

    If you really want to save for a house, you should save that $7000 for the down payment on the hosue and then pay down the debt on this car over time, keep it, and drive the wheels off it. And stop looking at $20,000 cars if you are broke! You can buy a decent used car for a lot less than that!

    I had a friend who bought a perfectly decent Corolla for three grand, drove it for five years and sold it for $1500. You don’t need to spend tens of thousands of dollars to have a reliable ride. MOST PEOPLE BUY CARS FOR STATUS REASONS ALONE, not for practicality. And I am guessing that is what got you into trouble here.

    By age 30 you should be paying CASH for your cars. When the time is right to buy another car (when the one you are driving has over 200,000 miles on it) look for a late model 2-3 year old used car that you can pay CASH for. No, it will not impress your buddies, but it will get you to work. Eventually, you will be able to afford to buy nicer cars, once you get your finances in order. But borrowing more and more money now is just going to steer you off toward bankruptcy.

    Buying a house is more important than having a cool car, so get your priorities straight there. $700 a month in car payments is just INSANE.

    I own two BMWs. Paid CASH for them, secondhand. I drove a lot of clunkers over the years to get here, though. But it was worth it.

    Other folks “want it all now” and lease new cars and are broke and bankrupt by age 40.

    FWIW.

  • Robertplattbell

    Ouch. Your finances are in a shambles and no, a 660 is not a good credit score. 830 is.

    You are “upside down” on your car because you paid too much for it. Buying new cars is a sure way to middle-class poverty. And most middle-class people do this over and over again, buying or leasing one car after another and spending every dime they make.

    If you want to get ahead of the game, you need to KEEP a car, pay it off, and then OWN IT FREE AND CLEAR for a number of years – like a decade or more.

    How you got into a situation of owing $19,000 on this car is beyond me, but you are in it now, so don’t make things worse by “churning” your car inventory into something else.

    A car dealer will be all too happy to bend you over the desk AGAIN and “roll over” the negative equity you have in this car into another one – at a staggeringly high interest rate. You will be right back where you started, owing more on a car that it is worth with even higher monthly payments (not to mention insurance payments!).

    If you really want to save for a house, you should save that $7000 for the down payment on the hosue and then pay down the debt on this car over time, keep it, and drive the wheels off it. And stop looking at $20,000 cars if you are broke! You can buy a decent used car for a lot less than that!

    I had a friend who bought a perfectly decent Corolla for three grand, drove it for five years and sold it for $1500. You don’t need to spend tens of thousands of dollars to have a reliable ride. MOST PEOPLE BUY CARS FOR STATUS REASONS ALONE, not for practicality. And I am guessing that is what got you into trouble here.

    By age 30 you should be paying CASH for your cars. When the time is right to buy another car (when the one you are driving has over 200,000 miles on it) look for a late model 2-3 year old used car that you can pay CASH for. No, it will not impress your buddies, but it will get you to work. Eventually, you will be able to afford to buy nicer cars, once you get your finances in order. But borrowing more and more money now is just going to steer you off toward bankruptcy.

    Buying a house is more important than having a cool car, so get your priorities straight there. $700 a month in car payments is just INSANE.

    I own two BMWs. Paid CASH for them, secondhand. I drove a lot of clunkers over the years to get here, though. But it was worth it.

    Other folks “want it all now” and lease new cars and are broke and bankrupt by age 40.

    FWIW.

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