Steer Your Auto Loan in the Right Direction

Your vehicle isn't just a convenience – it's essential for getting to work, transporting your family, and maintaining your lifestyle. But with rising prices on everyday goods and services, you might feel you have to choose between making your car payment and covering other essential expenses. Fortunately, you can make a U-turn on this challenging road and head in a direction that protects your auto loan while getting your finances firing on all cylinders. Here’s how.

Stick to a budget.

Following a budget puts you on track to making sure your car payment and other obligations are met each month. The detailed breakdown of income and expenses helps you see exactly where money needs to go and where it's actually going. If after 60 days of monitoring your spending, you find that $200 a month is going toward restaurant meals, reduce that to $100. This savings can help ensure a $700 car payment is covered while still allowing you to enjoy occasional meals out.

Increase your income. 

Multiple income streams provide extra financial security that can help protect your ability to make car payments. Beyond your primary job, this could include part-time work, freelancing, selling items online, or using your vehicle for delivery services. Creating additional income sources helps prevent auto loan delinquency by providing backup payment options if your primary income is reduced or interrupted. 

Identify skills, available time, and physical resources that could generate extra income during evenings or weekends. For example, spending just 10 hours per month doing delivery services could generate an extra $200–$300, significantly easing the burden of your car payment.

Build an auto loan emergency fund. 

An auto loan emergency fund is a financial safety net that helps you make your auto loan payments when unexpected expenses arise or your income changes. This money is kept in a dedicated savings account and should equal three months of car payments. A financial buffer like this could make the difference when choosing between making your car payment and handling surprise expenses like medical bills or home repairs. 

Start your fund by automatically transferring a small amount from each paycheck into a separate savings account. For example, if your monthly car payment is $700, setting aside $120 per month would total $1,440 after one year, giving you enough to cover two full car payments. Continuing to save at this rate will help you reach the recommended three-month buffer, creating a solid cushion between you and potential loan delinquency.

Create a debt repayment plan.

High-interest debt can silently drain away money you could use to stay current on your auto loan. Beyond just making minimum payments, strategically tackling your high-interest debts, like credit cards, can free up significant monthly cash flow that can be redirected to your car payment or auto loan emergency fund. Managing your debt load helps prevent auto loan delinquency by reducing monthly payment obligations and creating more financial flexibility. 

Consider paying off debts with the highest interest rates first (the debt avalanche method), which minimizes the total interest paid over time. Alternatively, start with the smallest balances (the debt snowball method) to gain quick wins and build momentum while maintaining minimum payments on other debts.

Avoid unnecessary borrowing. 

Limiting new debt helps prevent auto loan delinquency by keeping your monthly obligations manageable and maintaining financial flexibility for emergencies. Before taking on any new debt, calculate its impact on your monthly budget and ability to make your car payment. For example, a $2,000 furniture purchase on credit with a $50 monthly payment might sound reasonable. However, that $50 could instead go directly to your auto loan, allowing you to pay the balance off sooner and save on interest charges in the process.

You don’t have to face these challenging financial times alone. Credit Union of Colorado members who are experiencing financial difficulty are encouraged to speak with our Member Solutions Department at 800-444-4816. Our trained representatives can discuss your options and offer solutions based on your specific situation.