Debt is a millstone around the neck of millions of people, and yet with the right approach you can pay down what you owe without this compromising your quality of life.
If you’re faced with steep repayments that are causing you stress, you might be tempted to sell your assets to reduce the burden. If your vehicle is the most valuable item you own, it could be the first thing you consider using to offset your debt obligations.
The question, then, is whether selling your car to reduce or clear your debts completely is a good idea. Let’s attempt to answer that in as much detail as possible.
Consider alternative ways to pay off high-interest debt, e.g. taking out a personal loan
First and foremost, it’s worth pointing out that selling your car is probably a last resort, and you should definitely consider other avenues for dealing with debt before you pull the trigger.
A great example of this is to consolidate your debts with a personal loan from a provider like SoFi. By doing this, you can escape from the steep interest that you’re faced with elsewhere, and instead enjoy low rates on a loan agreement that is amenable to your budget.
Calculate the costs of car ownership
Owning a car is expensive, and not just because the vehicle itself costs thousands to acquire in the first place. From maintenance and servicing to insurance, fuel and beyond, your car could be a bit of a financial albatross in its own right.
The only way to get to the bottom of this is to look at your average monthly expenditure on your motoring activities. That way, you can see whether selling your car would leave you in a much better position.
You could also consider making changes to minimize these costs, such as getting a cheaper car insurance quote.
Explore the role your vehicle plays in day to day life
It only makes sense to sell your car to pay off debt if by doing so, you won’t be severely hampering yourself in other ways which might leave you in a worse position than if you held onto it.
For example, if you need your car to get to work, and there’s no other option but to drive yourself, then selling won’t be savvy.
On the other hand, if you could use public transport, or get a ride with one of your colleagues, then your car isn’t as essential as it might seem.
Check if you’re the outright owner of your automobile
If you purchased your vehicle on credit, and you have paid this off in full over the course of a few years, then it is yours to do with as you please. If, on the other hand, it is still covered by a loan agreement and there’s balance left to pay, selling might either be unwise, or impossible.
Part of the problem here is price depreciation, which hits every model of car. The gap between what your car is worth, and what you originally paid for it, could be sizable. And if there’re still repayments owed, selling it might not leave you with enough cash to cover this.
Analyze all the options
Most importantly, you should not rush into selling your car to pay off debt, as there could be another way forward which doesn’t mean losing your vehicle.
For example, it could be worth selling your car and downsizing to a cheaper model, while using some of the sale price to reduce your debt and thus enjoy lower repayments. It’s all dependent on your circumstances and needs, so do your research and take your time.