Bad credit, upside-down loan – What should I do?

[Anonymous]

A little backstory – Last year I was involved in a car accident, not a single airbag went off. I ended up missing work, and had to max out two credit cards, one $12k the other $7k. My wife and I drove identical cars, but since she's driving around with our kids more than I do, I felt like it was time for a safer car. So I went ahead and traded in her car for something I though was safer at this time.

This brings us to now – We're expecting our third child and the current "safer" vehicle turns out to be not so safe trying to fit three seats in the back of the vehicle. You guessed it, we're needing a bigger car. We were upside-down bad when I traded in her vehicle but I didn't car after the accident. I went for a 60 months lease (yes 60 months!). I'm still having to pay about $23k, and the pay-off is somewhere in the $38k. The vehicle is worth maybe $17k – at least that is what I was told when having a dealership look at it.

My credit score also took a huge hit when maxing out those credit cards, my credit score dropped from 740 to 505. Just yesterday I gained 40 points and I'm now at a 545. Thank god! I've tried trading in the lease for a truck but my payment (thanks to my **bleep**ty score) would be somewhere around $1200/month. I went through every possible scenario to get around that payment. Refinance, having family give me money to pay of debt and once the score is better I pay them back, a co-signer. But nothing quite worked out in my favor.

My last solution would be, attempting to get a second vehicle for around $27k to get closer to a mid-700s payment, and then at some point telling my bank to take back their lease. I know that this will for sure screw up my score but in the end I will need a bigger and safer vehicle for my children. Any other suggestions?

[enjoimorenow]

Unless you start to pay down your loans you are never going to get away from the negative equity death trap that you are in.

Continuing to roll negative equity into a new car which will gain further negative equity is a never ending pattern.  There really is no magical way to get rid of negative equity other than GAP insurance after an accident.

My advice... pay down your current loans and credit cards as much as possible and rebuild your scores.  Then you will be able to qualify for a better rate and you will have less negative equity.  

[Anonymous]

Honestly in this case if you have a friend or family member willing to lend you some money you would be begged off paying $5000 or so for a car that will be paid in full. I have 3 children and when we were rebuilding we had one used minivan (20,000 on payments) and one paid in full Oldsmobile also. It fit 5 in pinch because my brand new car was a lemon and left me stranded everywhere but I digress... you don't need a car payment to have a safe car and in fact it sounds like you really don't need a car payment

[Appleman]

Time to do some research. Your situation does sound rough and it will require some dedicated effort to get out of this situation.

I would spend some time in the rebuilding section and see if you can get advice from anyone there that may have been in a similar situation. I am not one to recommend BK but it may be a very real possibility.

I would take some time to look at some Dave Ramsey information or other budgeting items that can give you a realistic picture of your total financial picture. It would be easier to make big sacrifices while the kids are still very young.

I truly wish you good luck.