Can I Ever Get Out of Debt From My Car Title Loan?

“Dear Steve,

I owe 3 credit cards totaling 4000 with an interest rate of 22.9%. BUT I also have a title loan of 9000 which has an interest payment of 525 a month.

I know I was stupid but that’s water under the bridge now. My question is this, should I pay off my credit cards first and then tackle my title loan or visa versa.

I also have a car payment of 293 a month for another 3 years. These are the only bills I have besides the normal (rent and utilities). 2000 on 1 credit card, and 750 on 2 other cards (total 1500)

Please tell me how to fix this. Thank you.


Dear Winny,

Since the car is most likely one of the most important assets you have to maintain and improve your income, I think we need to tackle the title loan first, if we can. But I’m not sure we can.

You don’t seem to need a lecture from me on the risks of title loans. It sounds like you already learned that lesson.

I completely understand why people turn to payday and title loans in times of crisis. They are easy ways to get your hands on some cash in a hurry. But oh do you pay for it.

Without having that car title loan paid off you will not be able to sell or trade the car in unless someone pays off the loan first. I’m assuming they have the title loan recorded as a lien against the car title.

At the current title loan rate you are paying $6,300 a year in just interest charges. That’s without reducing the amount of the loan.

Over four years you’ll pay $25,000 in interest without even reducing your $9,000 loan balance.

Even if you double up on your payments and paid $1,050 a month towards the title loan it will take you more than a year-and-a-half to break free from this loan.

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I wonder if that is even something you could manage on your current income. And keep in mind, you need to have money to pay your other debts and build up your savings at the same time. While you have not shared your income with me, I’m assuming that’s an unrealistic expectation.

Let’s say you went to work tackling the small credit cards first. That’s awesome but you’ll still be left with the massive title loan debt that is generating all that interest each month.

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If you could quickly dispose of the credit card debts in three months you could then set your sights on the title loan. But that three month delay will cost you nearly $1,600 in just title loan interest payments.

You see without the ability to save money at the same time you are getting out of debt, any unexpected expense is more likely to wind up needing some emergency money to cover it. This is how people find themselves turning to payday and title loans when times are tough.

If everything I’ve shared and assumed is correct, I think the time might have come for you to talk to a local bankruptcy attorney who is licensed in your state. Bankruptcy would give you a fresh start and allow you to get out from under this crushing debt and have a reasonable chance to do better moving forward.

You might have to hand your car back to the bank but you can probably get a car following the bankruptcy at one of the buy here – pay here lots. Then, focus as hard as you can to rebuild your credit after the bankruptcy. In a year or two you’ll be eligible for better car financing rates again and you can ditch temporary car.

I completely agree there is not a perfect solution here for your situation. You might just have to pick the least crappy solution and do something to break this circle of debt.

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Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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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.
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