When you are having trouble paying your bills and managing your debt in Colorado, it is a good idea to look over your finances and see what is wrong. For many people, it is a car loan that is causing them issues. That is because, according to Edmunds, about one-third of people who own cars owe more on their vehicle than it is worth. This is what people call being upside down on the loan.

When you go upside-down on a loan, all it takes is an accident to push you into serious financial issues. That is because if your insurance company declares your car a total loss, it will only pay what your car is worth. Since you owe more than that, you must pay the rest of the loan off even though you no longer have a car to drive. There is also an issue when you have no equity but want to sell or trade in the vehicle. Again, you cannot get enough from the car to settle the loan.

How it happens

Going upside-down with your car loan can happen easily. You may not pay enough each month to cover the interest and part of the principle. This might be because interest rates are too high. In addition, the value of vehicles decreases with time. If you have an especially long loan, it is very easy to get to the point where you owe more than it is worth.

Prevention

You can prevent the no equity situation by putting more money down when you buy it. You may also consider leasing instead, especially if you like to trade in your car often.

Going upside-down on your car loan may make it frustrating to pay the large car payments each month. It may also strain your finances if you end up in an accident situation where you lose the car and must continue paying the loan. In a case like that, you may consider bankruptcy.