How to Give Up a Car to Reduce Debt

Giving up a car to reduce a debt can be a smart move for someone struggling with a tight budget -- or for a person who simply wants to reduce expenses to pay down debt. A car payment, gasoline, oil, repairs and insurance for a car can easily total hundreds of dollars a year. Someone with a car payment of $400 or $500 could spend more than $1,000 a month on the vehicle with the added expenses. However, not all cars are easy to get rid of, and careful planning is necessary to make for a smooth transition.

Instructions

1

Create a plan for managing your life without the car you plan to get rid of. Talk with your spouse or partner, if applicable, if you are getting rid of a second car. Create alternate plans for commuting to work or school by contacting local transportation agencies or transit authorities. Consider travel by bus or subway. Get cost information to determine the monthly expense of getting around without the car.

2

Review monthly expenses for the vehicle you're planning to get rid of. Estimate the cost of gasoline for a month or check records from your credit card or gasoline card. As an alternative, drive the car for another month or two and record all expenses. Also set a monthly projection for insurance and repairs based on annual costs.

3

Compare the current expenses for the car vs. what you'll spend without the car on commuting costs and similar expenses, such as an occasional rental car or taxi. Make sure the savings are significant enough to offset the loss of convenience.

4

Sell the car if you own it free and clear. Advertise in a local newspaper or on free online classified sites after determining the fair market value. Determine a reasonable price for the car by contacting local dealers and describing the vehicle or by checking free online car appraisal sites such as kellybluebook.com.

5

Contact the lender if you are still making payments on the car and obtain the payoff amount on the loan. Sell the car to someone for the fair market value or a higher price. Take money from your checking account or savings account to make up any difference between the sales price and the balance remaining on the loan.

6

Surrender the car in a so-called "voluntary repossession" if you owe money on it but cannot sell it. Do this only if your debt situation is desperate and you can no longer make the payments. Negotiate a payment plan or settlement with the lender to pay off any loan balance remaining after the lender sells the car at auction.

7

Apply money that you are saving -- or will save -- from getting rid of the car to other debts.