How to get a handle on your car debt
Having your vehicle financing approved is really only the beginning.
The problem is that by taking out a loan for your car, you’re placing yourself in debt until the car has been paid off.
And, if you’ve used a vehicle finance calculator to work out your repayments every month, you would know whether you could realistically afford the car or not.
What’s comforting is that the bank wouldn’t have approved your financing unless they could see you had the extra cash to meet the monthly installments.
But, the smaller your installment increments are, the longer you’ll be in debt and the more money you’ll end up paying for your car in total, thanks to a thing called “interest”.
There’s a love-hate relationship with car debt, you need the loan to get the car you otherwise could not afford, but you also need to get out of debt because it’s financial baggage you’d rather not be carrying around. We’re going to discuss a few ways you can get a handle on your car debt before it becomes too much and the bank threatens to take the car back.
The sooner you pay it off, the better
We’ve already introduced you to the “interest” term. Based on a variety of factors, your interest rate will be personally calculated when you apply for financing. This interest rate is what you pay on a monthly basis on top of the price of your car. So, the longer you take to pay off your car loan, the more you’ll be paying in interest (which will, essentially, increase the total price of your car).
Now, the advantage of paying off a car loan over a longer period of time is that you’ll be paying a smaller amount of money every month. It may be financially more comfortable for you to pay over 60 months so that you still have money to play around with in the month. However, you’ll end up saving thousands of rands more if you pay the loan off in, say, 36 months (sooner is better). If you’re honest with yourself, you can afford to part with a higher monthly installment for your car, you just need to know how to prioritise your budget.
A finance tip: if you want to see how much you’ll pay for your car in total, use a car payment calculator and compare the difference between paying it off over a longer and shorter period of time. You’ll be surprised at how much money goes towards interest.
Cut out all unnecessary expenses
Your budget is your life when you’re trying to get rid of your debt.
Make the hard calls and cut out all unnecessary expenses. You might need an objective opinion on what is considered unnecessary and it will be hard to do, but try your best at least until your debt is repaid.
Gym from home, make do with the set amount of cellular data that comes with your contract, don’t buy takeaway coffees and lunches, you don’t need a new pair of shoes right now, and unsubscribe from anything you don’t rely on, on a daily basis (Netflix included). The more money you save from these expenses, the more you can put towards your monthly car repayment and the sooner you can be car-debt free.
If you need some motivation to stick to your budget, keep reminding yourself that it’s only temporary changes. And by the time your debt is paid, you’ll have all that extra money to redistribute throughout your budget every month. And that’s definitely something to get excited about.
Take out a consolidation loan
Paying off a loan by taking out a loan may seem counterproductive, but just hear us out. The purpose of a consolidation loan is to combine all your debt repayments into a single monthly payment under one loan. These usually have a lower interest rate than what your current car loan has, which means you’ll be saving money. It’s an easy way to manage your debts if you’re in the middle of more than one loan repayment.
Through a debt consolidation loan, you’re able to pay off your debts faster and save money while you do so. If things really start getting out of hand, you should seriously consider this repayment option.
When it comes to getting a grip on your car debt, it is going to be difficult. But it’s not impossible and, to be honest, reworking your budget is one of your greatest reliefs. We don’t always realise how much money we spend unnecessarily or without thinking. That is, until you write out all your expenses and weigh it up against your income. Debt doesn’t have to be the end of the world or of your financial freedom. You just need to get a handle on it and be responsible with your money until it’s over.