Americans today are spending 15% to 20% of their take-home pay on car payments alone – this means, the cost of gas, insurance, tags and maintenance haven’t even been taken into consideration when totaling up car costs. Why are we spending so much on our cars? Having longer-term car loans and crafty car salesman doesn’t help matters. Not to mention peer pressure. The problem is, once you have committed to a car payment, you are stuck with it– no cutting back on it as with other expenses such as eating out and groceries. You have to make the payments or let the lender repossess your car. The later is hardly an option as you would still owe the difference between your loan balance and whatever the car brings at an auction, plus your credit becomes nearly ruined.

So what can you do to avoid becoming over your head in debt with a car payment? First, when purchasing a vehicle, remember that the longer the car loan’s term the more likely you will become upside down on that loan. What does that mean? You will owe more than the car is worth after close to three years, therefore if you try and trade it in, you won’t get back as much as you owe. This is followed by the need to roll that debt into the new car purchase and the cycle starts again. Therefore, to purchase a car you can truly afford, stay within the four-year loan term. If the payment is more than what you would like, then look at a less expensive vehicle.

Second, drive your current car longer before trading it in for another. Cars are more dependable these days and can be driven past 200,000 miles. If you are tempted to try and justify the cost of repairs on your old car in order to buy a new car – do the math. If your new car is costing $7,000 a year or $530 a month – putting $1,500 into your car in one payment, even twice a year, is still cheaper.

Third, remember that the cost of the car doesn’t stop with the monthly payment. Insurance, repairs, taxes, maintenance and even depreciation can double the price of your vehicle in a five-year period.

So are you tired of stressing about finances? Then start looking for changes in your own garage. A little bit of car knowledge can take you a long way.