debt

Drive away auto debt with these tips



Auto debt got you in trouble? Here are some tips to remember to help you climb out of the hole.

1. Good rule of thumb for auto-related expenses: 15 percent to 20 percent of your household income
If you're spending more than that on your vehicle or vehicles, you need to take a closer look at your transportation needs.

2. Need to skip a payment one month? Your lender may allow it, so make the phone call
Many have provisions for allowing customers to do this up to twice a year. How it works: Instead of the entire payment, you pay only the interest. The payment you missed is added to the end of your loan.

3. See if your lender will let you refinance over a longer time period to lower your payments
If you're facing long-term problems and need smaller payments, this might be the solution.

4. Jingle mail for cars? Not a great idea
Giving back your high-payment ride, even voluntarily, will trash your credit.

5. Repossession doesn't necessarily give you a clean slate financially, either
The lender can come after you for the difference between what you owed and the price of the car at resale. But many will allow you to pay it off monthly.

6. Want to lower your auto expenses? Shop insurance vigorously
When that renewal notice arrives, see if your agent can offer a better deal. And check the effect of extra discounts or raising your deductibles. Then call a few other companies and at least one broker, and compare quotes.

7. Is a friend or relative trying to convince you to co-sign on an auto loan? Don't do it
If the borrower doesn't make the payments, the loan company will come after you for the balance. And any delinquencies go on your credit report.

8. Looking to trade or sell that gas guzzler? Make sure the value is more than your loan balance
Call the lender to determine the cost to pay off your loan. Then check your car's actual value on sites like KBB.com and Edmunds.com. Under water? Find out when you're due to break even with the Monthly auto loan payment calculator.

9. Want to make extra payments to reduce your auto debt? It might not be worth it
Read your contract to see if extra payments are applied to the principal or (as in the case with some deals), the interest gets paid first. If it's the latter, bank those "extra payments" and use the money to pay off the car all at once.

10. Spend less at the pump:

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  • Buy the lowest octane gas your car can tolerate.
  • Stop pumping the first time the nozzle clicks off (otherwise, you're washing the side of your car and the street with your money).
  • Screw the cap on tight. (Evaporation wastes 147 million gallons each year, according to the Car Care Council.)
  • Park in the shade. (Less taxing on heat and air, less fuel evaporation.)
  • Use the right oil grade for your auto.
  • And the old reliables: Keep tires properly inflated, check the air filter when you change the oil and drive within the speed limit.
-- Updated: June 16, 2008

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