UPSIDE DOWN DROWN

Dear Uncle,
Please help. I read several articles that were similar to mine but still I'm unclear on what to do to fix my problem.  Four months ago I bought a 2005 KIA Sorento the car was new and stickered at like $24,000 but I was already upside down in my previous car and with my negative equity plus all the crazy fees I ended up financing $29,000. Now I'm seriously upside down in the car and the payment is $499/month and that is my whole paycheck for a week I can't keep making this enormous payment and feel like a complete idiot for even buying the car in the first place.  I honestly don't know what stupid banker thought I could afford it either, I guess the fact that my credit is absolutely perfect is why. But my point is I can't keep this up.  Even if I find a car I can roll the negative equity into, the payment is still going to be outrageous! This is my family's only vehicle so we have to have a car, but if we let it get repossessed then my credit will be shot, luckily the car is in just my name so we could maybe finance a replacement in my wife's name but she only works part time so who would give her a loan.  What do we do? Between $315/ month for insurance for the car and $499/month for the car payment we are drowning. If it gets repossessed and there is a judgment and we can't pay that then what happens? How can we get out of this so we can never ever do this again?
 
Help!!
David in North Carolina

 David,

Please chant, “Ask Uncle Jim BEFORE slipping this noose around my neck,” 100 times whenever instant gratification comes stalking.

You will not help this situation by buying yet another upside down car because you eat the worst depreciation as soon as the car leaves the showroom.

Repossession solves NOTHING. You will still owe every penny, plus repo fees and require a vehicle for family use. If you have a judgment against you bank accounts or other assets could be taken. Therefore, address paying off the debt and avoiding upside down quicksand in the future.

The best way to resolve this is to increase income and reduce expenses. If possible, work overtime, weekends, whatever. Christmas is here – stores need part-timers. Reduce your budget to the bare bones. Cell phones, cable services, dining out, movies should be itemized and minimized. Switch to generic brands and less expensive everything. I am willing to bet that you could easily save $100 per month following those guidelines.

Creative financing can help.
Family financing can benefit the lender and the borrower. Perhaps a relative would rewrite the note. They would have to be nuts to write upside financing but parents often do crazy things for their kids (some take equity loans). If all thing go well they enjoy better interest than they get at the bank and you get a lower monthly payment. Uncle Jim does not recommend this but the possibility exists. 

If your credit is perfect, you probably get teaser rates for moving debt to new cards. Do that - but be careful, one late payment can have serious impact on your interest rate. Try not to increase credit card debt except as a last resort. If you have a vested 401k with your company, enquire about borrowing against it. 

These tactics are difficult to implement desperation measures. They might serve as stop gap devices until pay increases come along and fiscal sanity appears as a light at the end of an uncomfortable tunnel.

Bite the bullet,
Uncle Jim