If you’re behind on payments for a car that you purchased, then before giving up the vehicle, contact your auto loan lender and try to renegotiate to new terms for reduced monthly payments. With weak demand for new and used cars right now, the auto loan lender may have a significant disincentives to take on additional stock, so they may be willing to talk. The worst case is to surrender a vehicle that you hold ownership over to an auto loan lender, since you lose the opportunity to recover some of its value through selling it. Cash recovered through an auto loan lender from a financed car can be used to buy a no-frills commuter car outright, or better yet, for payments towards debt elimination. Picking up copies of the public transit routes in your area can reveal some surprising options for getting to and from work, negating the need for an auto altogether. The one thing to avoid is spending any freed up cash on non-essentials.

If you want to free up cash from a car and carry debt, make sure to evaluate all of your transportation options to get to and from work. Also, make sure to take into consideration the total cost of trading down the car. If you opt to replace the car with a more modest vehicle, make sure to understand not only the price of the replacement, but also the reliability, fuel economy, and choose one with a relatively low total cost of ownership for its remaining lifespan. Plan on keeping this car as long as is financially reasonable, i.e. until the cost of maintenance and ownership reaches a level that is too high to justify continued possession.

Trading down a car can be problematic.

While the upside to trading down from an expensive car to a modest one can seem obvious for a debt reduction strategy, make sure that it is the right move financially-speaking. For example, trading down to gain a couple of miles per gallon in fuel efficiency is rarely worth the total cost of switching vehicles unless you log huge miles. Also, to make the trade down financially sensible, the replacement vehicle has to be enough of a difference in price in order to justify the switching costs. Understand the difference between the current and new monthly cost of ownership, maintenance, and driving. If the difference in insignificant, or if it is minimal, continue with your current car and think about other ways to beef up your debt reduction strategy. In short, evaluate all of your options clearly, understand the new costs of ownership and maintenance beyond just the purchase price, and take seriously the possibility of getting to and from work on public transportation – at least on a temporary basis. The DebtGoal product offers a number of easy-to-use actions that allows one to quickly form and execute a debt reduction strategy.