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When you can't afford the car payment

Dear Debt Adviser,
I am currently financing my car loan at 24 percent because of a former repossession, but I can no longer afford my car payments (37 months remain at $492/month). I co-signed with my spouse, but I don't want to mess him up. I want to get out of the loan, but because my credit is worse than horrible no one will take me as a borrower, even my own bank! I am currently employed (10 years with the same company) and make good money, but I just can't seem to keep up with these car payments. I need a car to get back and forth to work. What can I do?
-- HelpMe

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Dear HelpMe,
Halloween may be over, but this is a scary situation! What you need is an immediate financial exorcism. Your situation is serious and could negatively affect both your job and your marriage if you don't get it under control. Your letter is a cry for help, and I am going to do my best to help you help yourself.

Follow the suggestions below to get to the bottom of things.

1. Spend on essentials only and stop all other spending. Let me define essentials:

  • Food is an essential. However food from a restaurant is not. Use a list and coupons when you shop.
  • Utilities. Heating your home is important. However, even though my mother likes a toasty 78 degrees, this is not essential.
  • Shelter. Mortgage or rent has to be paid and on time. Maintenance may be deferred, as long as it doesn't result in a hazard.
  • Most new purchases for clothes, furniture or entertainment are not essential.

2. If you owe about what the car is worth, or can make up the difference in cash, sell it, pay off the loan and buy a less-expensive car. Also, 24 percent is awfully high for a co-signed loan. Perhaps getting a replacement car in his name would be better.

3. Communicate with your spouse. From your letter it sounds as if your credit and money are separate. He co-signed your current car loan, so he must have some idea that your finances are less than ideal. If you have been less than completely honest about how you are handling your income and obligations, now is the time to come clean. You and your sweetie are still a team; especially since your car default will haunt his credit report and the collectors will be "trick or treating" him as well as you. Guys are notoriously bad mind readers. He may be able and willing to help, but you need to talk about it.

4. Get professional help. Particularly if you have left important details out of your letter like the fact that you have huge credit card debt or a $5,000 a month gambling problem! Seriously, if you can't get a handle on things yourself, schedule an appointment with a reputable credit counseling agency. Your counselor will help you come up with a workable, detailed, written plan to help improve your financial situation.

By the way, one thing you did right was to purchase and not lease the car. Being stuck in a lease you can't afford is a lot worse than having to sell a car and take a relatively small loss to get out from under! Stick with it and let me know about your progress.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of Credit Repair Kit for Dummies. Visit MMI for additional debt advice or click here to ask a debt question.

Bankrate.com's corrections policy-- Posted: Nov. 11, 2005
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