If you’re overwhelmed with debt, it’s not easy. The burden can make you scramble for quick ways out, and one of the first options may be selling your car to settle the debt. But this decision is made harder by your attachment to your car and concerns about getting by without it.
Before you make any decision, it’s important to zoom out and take a clear-eyed look at your current finances. Here are some key factors to consider when deciding if selling your car to pay off debt is a good idea.
Do The Math
This is very basic, but the first thing you need to do is pull out your calculator and check whether the numbers make sense. When you get it all down in writing, it gives you a clearer picture of whether selling your car can actually pay off your debt or if it’s going to cause more financial burdens in the future.
Most people would suggest that paying off the loan as quickly as you can is the best option, but it all comes down to your unique circumstances. For example, if you owe $6,000 on a car worth only $3,000, selling it would not make sense.
In most cases, selling your car may not help in the long run. It can even derail your debt-free journey. As a rule of thumb, if selling your car and buying a cheaper one saves you $1,000 in debt payments, consider it. Otherwise, try other options, like a part-time job or selling your belongings to pay off debt.
Consider The Car Insurance Costs
This is a key consideration when contemplating selling your car to settle debt, as your decision could significantly affect your car insurance costs.
If you can reduce a large chunk of your monthly car insurance premium by selling your car, this would be an excellent option. For example, let’s say you pay $150 per month for car insurance. This is nearly $2,000 annually, which can otherwise be put towards settling your debt if you sell your car.
So, whether you decide to sell your car or not, cutting your insurance costs and using that money to pay off more debt is worth considering.
What Are Your Future Arrangements For Transportation?
Having a car is convenient. Without it, adjusting your commute may take time. If you have another car, this shouldn’t be an issue, but if you plan to sell your only car, consider buying a cheaper one or making other arrangements.
If you have family members who depend on your car to get to school, work, or other places, figure out public transportation options in your area. You can consider rideshare services, biking, or walking. The goal is not to end up deeper in debt than when you first started.
Do You Have Full Ownership Of Your Car?
If you own your car outright, selling it to settle your debt would be an attractive option, though it would be difficult. If you don’t have a loan on your car, every dollar from the sale can help get you out of debt. The choice comes down to whether you keep your paid-for car and spend more time finding a way out of debt, or sell it to accelerate your payoff plan.
How Much Do You Love Your Car?
When it comes to personal belongings like a car, given the attachment we have to them, it is difficult to separate the human element from financial decisions. Ultimately, your preferences and experiences will guide your choice. Does selling your car cause more anxiety than keeping it? If you feel able to pay off your debt in a reasonable time, such as within 2 years, keeping your car may be a good decision.
Final Thoughts
Buying a car is one of the biggest financial decisions you will make, but the decision to sell it will require far more thought and will be more complicated. While selling your car to settle your debt makes sense, you need to consider the above options before you put it up for sale.
Make sure ot get an accurate valuation of your car and calculate the debt you can eliminate by selling. Simultaneously, explore transportation alternatives and create a robust post-sale financial plan. Take time to decide and gather as much information as possible to choose the path that aligns with your financial well-being.
