Our Car Payments are Too High, What Options Are There Other Than Refinancing?

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Q. My husband and I recently separated from Active Duty Air Force. We have two vehicles with high payments that we will no longer be able to afford. I’m not sure refinancing would help because our credit is in the low-mid 600s and we still owe a lot on both vehicles. Are there options other than refinancing?

Dear Reader,

First and foremost, thank you for your service to our country! Major milestones, such as rejoining civilian life, can sometimes strain your finances. There are a couple of options that you can explore to manage your payments, but they will mostly depend on the status of your current loans and your overall financial situation.

If you own both cars, a good place to start is to determine if you have equity in your cars or if you are upside down. Most people are usually upside down, which means they owe more than the car is worth. If you have equity, your best bet is to sell them to CarMax or through the Kelly Blue Book Instant Cash Offer because you can sell quickly and effortlessly. Selling your car privately would probably get you a better resale value but selling it without a title in hand can be tricky, especially if you still owe thousands of dollars on your loans. So, if selling is not an option, contact your lenders as soon as possible and find out if they offer any programs to help consumers manage their payments. They may be able to suspend or reduce your payments temporarily or even modify your loan terms until you get back on your feet. Communication is key during this process.

Even though you think refinancing may not be the right strategy for you, don’t discard it until you actually talk to your lender and inquire about options to reduce your interest rates or your payments. If your lender cannot help, consider working with local credit unions or military financial institutions. Other lenders may use different lending criteria and may be able to offer you better rates and repayment options. The most important thing is that you avoid falling behind in your payments. After three or more missed payments, your options are more limited, and your lender can repossess your car. This is typically a last resort move for lenders, and if you get to that point, it is better to voluntarily return your vehicles to the dealer to avoid getting charged additional repossession fees.

If you are leasing your cars, your options are a bit more limited. Again, talk to your lender and negotiate an agreement because other options may be too risky and pricey. For instance, you can transfer your lease to someone else through a specialized company or trade in your car early. Both of these options can result in additional fees, such as the early termination fee and all the other fees included in your lease contract, which can further strain your finances.

It is understandable to feel overwhelmed with this situation, but it is important that you both know that there are resources available to help you deal with your car payments. If you are not sure where to look, consider enlisting the help of an NFCC-certified credit counselor. NFCC counselors have experience helping servicemembers transition to civilian life. When you connect with your counselor, they will review and assess your overall financial situation and make recommendations based on your priorities and income. Even more importantly, they can connect you with resources specifically available to military families like you. Together, you can find the right strategy to get you back on track. Help is a phone call away. Best of luck.

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

If you have a question about your own specific financial situation, don’t hesitate to submit your question to our experts today! If you would like a thorough review of your personal financial situation, contact one of our nonprofit credit counseling agencies today!

*Some questions have been shortened and/or altered for publication purposes while others have been published as is.