Should You Sell Your Car to Get Out of Debt?

Times are tough, and people need to cut costs however they can. For some, that means slashing their food budget and relying on staples like rice to meet their nutritional needs. For others, it means putting off doctor’s visits. Some people try to lower their car insurance rates, but no matter how much they slash from the monthly bill, owning a car is expensive. Routine maintenance, like oil changes, can add up over time. Gas prices keep rising, and that isn’t likely to change. People that live in rural areas don’t have much of a choice; they need to eat the costs in order to get anywhere at all. For people in less remote areas, however, selling their car may just be the best financial decision they can make.

American Debt

The average American has over $100,000 in debt once everything is tallied together. That’s an insane number, one which many people won’t be able to pay off within their lifetimes. So how does a car factor into it?

The average car payment is about $475 per month, and that equates to $5,700 per year entirely on its own. That doesn’t include insurance, maintenance, or gas. The average car loan is meant to be paid off over a five year period, and it’s almost guaranteed that at least one major repair will need to be done within that time frame. Car insurance costs vary drastically depending on someone’s location and driving history; a person could end up paying less than $1,000 or over $5,000 annually. That means that someone could spend anywhere from $28,000 to $60,000 on a car over the course of five years, and that’s only accounting for households that own one vehicle. When all of that money can be allocated to debt instead, it’s much easier for a family to get ahead.

Getting Rid of a Car

Unfortunately, very few people are starting fresh, and selling a car that’s not paid off doesn’t necessarily put someone in a better financial position. Something that cost $30,000 to buy new and sells for $7,000 will probably leave quite a bit of debt in its owner’s lap, and the irony is that the debt might be easier to pay with the car than without it.

Opportunity Cost

A great deal of American households are located in the countryside. Quite a few people need to commute an hour or more in order to get to work or the grocery store. Public transportation is almost non-existent outside of urban areas, and it’s usually very difficult to find work in a small town economy. For people in that situation, a car isn’t a luxury, it’s a necessity.

Urban Versus Rural

The best solution always hinges on circumstance. The one thing every car owner could benefit from doing in the current economy is trading down for a low-cost, fuel-efficient used vehicle. A car that costs $3,000 may only last for a year or two, but cheap cars are generally much cheaper to insure, they can be bought without going into debt, and by the time an old car needs major repairs, the owner can afford to get another car.

A person who can walk or bike wherever he needs to go would greatly benefit from selling his car. There are only a few regions within the US where this is possible, and while those areas tend to have a higher cost of living, the advantage of not having to pay for a vehicle is a net gain.

Jerry Lynch is a freelance blogger who writes about ways to save on car insurance. To compare auto insurance quotes for free, visit

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