Car Payments Can Wreck Your Budget and Lead to Bankruptcy

I meet with people in financial trouble for a living and am often amazed at the amount of the car loan payment(s) that I see. 

Generally, these high car loan payments appear to be the result of two things. 

1) Wanting to live up to the proverbial Jones' next door and:

2) "rolling" the old car loans into the new one in order to do so, like the couple in this article from the LA times.

From my vantage point, there are few that try to avoid the "jones'" and drive less expensive cars.  These car payments become so high as a result that they wreck budgets and often lead to bankruptcy. 

In the article, this young couple was thrilled that their payment was going to be less than $700.00 per month.  With gas costs, insurance, upkeep, registration costs etc. this car is likely costing them $1000.00 or more per month.   Many offset the hit on the rest of the budget this car cost makes by borrowing from credit cards.  After just a few months, the debt on the cards and the car are no longer serviceable, and the couple is out of options.

To make matters worse, the law no longer allows them to "cram down" the amount they owe on the upside down car to the actual value of the car in a chapter 13 bankruptcy,  unless the car has been purchased more than 2.5 years prior.  

So, some advice for all of us whose last name is not "Jones"....swallow some pride and drive a less expensive car.  Put the difference toward other aspects of your budget like retirement.

Then the next time you see the young couple driving a $55,000.00 SUV, and ask yourself how they are affording it...?  You will know the answer and pat yourself on the back.