Buying a car is a major financial commitment that you'll likely want to plan for a couple of months – if not longer. One of the biggest hindrances to a car purchase is debt. Not only could it hurt your chances of qualifying for favorable financing, but you could also find that you are unable to afford a monthly payment in addition to your current debt load. Before buying a car, check and see if you meet any of these signs that you're carrying too much debt:
Making ends meet each month is a struggle
Having too much debt often makes it difficult to pay your monthly bills, so if you find yourself unable to pay one or two each month, it is probably best to delay your car purchase. High-interest credit cards are extremely costly, as interest is charged every month at a rate of 20 percent or more. If the majority of your debt is on one high-interest credit card, consider applying for a lower-interest card and transferring your balance to it. Completing this process could help you move some or all your debt to a card with zero interest for an extended period of time – generally around 12 months, potentially saving you hundreds or thousands of dollars.
A recent credit or loan application was denied
No matter how good your credit score is, lenders may decline you if you carry too much debt. If you're denied an auto loan, even though you know your credit score is in good shape, you may have too much debt. This is especially true if your debt-to-income ratio is high; creditors worry you can't afford to pay off new debt. If you have a high mortgage charge or student loan balance, you might try refinancing.
Minimum payments are all you can afford
The minimum payment is a credit card company's best friend. You only pay a small amount each month to stay current, and the company makes money through the interest you accumulate. If you can only afford minimum payments, chances are you carry too much debt. Interest makes your credit card debt more expensive. A good strategy is to rid yourself of the highest-interest balance first. Pay as much as you can each month on that card and continue making minimum payments on the others. When you've paid off your highest-balance card, focus on the card with the next highest interest, and so on. This helps you eliminate the credit card that is costing you the most money.
Remember, you don't only have to pay for the car, but also insurance, so you can legally drive. Browsing the web for cheap car insurance quotes is a good way to find an affordable policy if you're worried about your current debt load being too much. However, the best plan of attack is probably to get rid of any costly debt before attempting to purchase a car.
Have you ever struggled with debt? What are some of the strategies you used to get out of debt?