I’m $45k in debt after a pay cut. Where do I even start?
Start with the biggest fixed cost, which is usually the car loan, then rebuild your budget around the new income, not the old one. A pay cut isn’t a lack of self-control. It’s the old budget meeting a new paycheck.
By Max, founder of ftrme · Updated I’m 27. I took a pay cut and now I have about $45k of debt, a lot of it the car. I feel stupid.
What does the internet usually say?
- “Dump the car.”
- “Get cheaper insurance.”
- “You have no self-control.”
Why that isn’t enough
The car advice is often right. The moralizing isn’t, and it’s the part people remember. What was missing was a payoff plan sized to the new income.
The plan, in order
- Rewrite the budget for the new take-home. Old habits were sized for old money. List what you earn now.
- Get the real numbers on the car. Loan balance, market value, payment plus insurance. If you owe more than it’s worth, ask the lender about options before selling.
- Shop insurance. Compare three quotes and raise your deductible if you have a buffer.
- List the rest by interest rate. Minimums on everything, extra to the highest rate.
- Free one big number. Freeing $500 a month from a car and putting it on debt clears about $30,000 in five years, before interest.
Look up your car’s value on a pricing site and your loan payoff amount. Write both down side by side.
Illustrative numbers: 7%/yr average return, monthly deposits, not a guarantee. This is general information, not financial, legal or tax advice. For your specific situation, a fee-only adviser, a non-profit credit counsellor or a lawyer can help.
Quick answers
Should I sell my car if I owe more than it’s worth?
Sometimes. You’ll need to cover the gap. If the monthly saving is large, it can still be worth it. Talk to the lender about options first.