Being in debt is like living under a dark cloud, but getting out of debt can be life changing. Lots of people have done it, so why not follow their lead? But know that getting out of debt means more than just paying off your credit cards; This includes changing your spending habits.
It also means prioritizing your debts, learning to budget, tracking your expenses, and creating emergency and retirement funds. Also, this is a detailed process, so you will inevitably make mistakes.
Fortunately, there are several things you can do to get out of debt faster. Here are 11 mistakes to avoid when trying to get out of your car loan:
1. Do not pay more than the minimum
If you only make the minimum payment on your auto loan, it will take you a lot longer to pay off the debt and you’ll end up paying a lot more interest. Make a budget and try to pay as much above the minimum as you can afford each month.
2. Skip a payment
If you miss a payment on your car loan, you will be charged late fees and your interest rate may increase. If you’re having trouble making a payment, contact your lender and see if you can work out a payment plan.
3. Not refinancing at a lower rate
If interest rates have dropped since you took out your car loan, you may be able to refinance at a lower rate and save some money. Check with your lender to see if this is an option.
4. Make only the minimum payment on your credit card
If you have auto credit and a credit card, you may be tempted to make only the minimum payment on your credit card to get rid of debt fast. However, this is a mistake. Paying more than the minimum on your auto loan and credit card is important to help you get out of debt faster.
5. Not prioritizing your debts
If you have multiple debts, you may be tempted to make only the minimum payment on each one. However, it is important to focus on paying off your highest interest debt first. In most cases, your car loan will have a higher interest rate than your other debts, so you should focus on paying it off first.
6. Consolidate your debt
Consolidating your debt may seem like a good idea, but it’s not always the best option. When you consolidate your debt, you may end up with a longer term loan and end up paying more interest. Also, you may be tempted to use your credit cards again since they are not consolidated with your loan.
7. Take out a home equity loan
Taking out a home equity loan to pay off your car loan might sound like a good idea, but it’s not. First, you are risking your home if you cannot make the payments. Second, you might end up paying more interest since home equity loans often have a higher interest rate than car loans.
8. Borrow from your retirement account
Borrowing from your retirement account to pay off your car loan is a bad idea. First, you will have to pay taxes and penalties on the money you take out of your retirement account. Second, you draw from your future retirement savings.
9. Use a debt settlement company
There are many companies that promise to guide you on how to pay off your car faster for less than you owe. However, these companies often charge high fees and don’t always deliver on their promise. Plus, settling your debts will likely hurt your credit score.
10. Filing for bankruptcy
Filing for bankruptcy should be a last resort. This will damage your credit score and make it harder to get a loan in the future.
11. Not budgeting
You need to budget if you are trying to get out of a car loan. You need to know how much money you take in and take out each month. Once you have a budget, you can see where you can cut back so you can put more money into your car loan.
If you’re struggling with car debt, avoid these 11 mistakes and you’ll be well on your way to debt relief.