In our first installment in this series, I talked about the three major types of debt obligations that can tie up an aspiring digital nomad to a location. The first one I’ll tackle is car debt.
As discussed earlier, an automobile is almost in all cases (excluding collectibles) a depreciating asset. Meaning it is something that if you assigned it a value today, said value would decrease over time. The newer the vehicle, the faster it will lose value over its initial life.
If you happen to be ready to start your nomadic life, but are stuck making payments on a vehicle, there are a few options you can weigh. In no particular order of importance, because it depends on your goals and current circumstances, you can consider doing the following:
A) Keep The Vehicle: This would be the easiest path to take, but the most costly on a monthly basis. You can certainly store the car in a friends’ or family member’s garage or in storage facility.
-Advantages: The obvious benefit is that you will have a vehicle should you decide to return to your country of departure. It makes transitioning back a lot easier. It also makes sense if you are planning on medium to short overseas stays (6 months or less) mixed in with medium-length stays of 6 months or more at home.
-Disadvantages: The drawback is that you will still have to continue making payments. Paying for a depreciating asset that you’re not using is not a smart financial decision. It is highly likely your lender will also require you to keep the car insured, regardless of whether you are driving it or not.
You may also lower the insurance premium by dropping unnecessary coverage. The insurance premium savings will help cover the storage fees, should need to do that.
B) Let Someone Else Take Over Payments: You can let a family member or friend take “unofficial” ownership of the vehicle. This allows them to make payments and take care of insurance payments and other vehicle maintenance issues.
-Advantages: Very easy to do. Just hand over the keys and make them pinky-swear that they will keep up with all the payments and fix all maintenance issues.
-Disadvantages: Strangely enough, pinky-swear agreements are hard to enforce by the courts, should a problem come up. And even if you had the foresight of putting it all down in writing, signed and notarized, your insurance coverage may be void should someone else other than the person covered in the insurance policy wreck the car. This means that you’re still liable to make payments on a now useless heap of junk (you’re still responsible for paying the loan,remember?)
I would highly recommend against taking this route, unless the person is extremely trustworthy and included in your insurance policy. This would cover you should anything happen.
A final caveat if against my advice you decide to use this strategy. As they say, “trust, but verify” but log into the accounts online and make sure that the other person is keeping up with the required payments.
C) Sell The Car: This entails selling the vehicle to a private party or commercial enterprise, paying off the loan, and passing off the title from your lending institution to the buyer. This is not hard to do and can be arranged with the bank.
-Advantages: This may be the best option for most and the most liberating, since one less payment equals more $$$ to spend for your day-to-day activities overseas.
-Disadvantages: If you have some time to go before your departure and can’t rely on public transportation or friends or family to get around, you may have to buy a “beater” car, or reliable “ugly” car to get around. The beater car will be a lot easier to sell once you’re ready to depart.
If you’re like most people out there, though, you’ll probably be “upside-down” on your car loan, meaning that you’ll owe more on your loan than the car is worth. For example, if you find a buyer, private or commercial, for your $15,000 vehicle on which you owe $18,000, someone will have to pay the additional $3,000 difference. The buyer won’t pay it, but maybe the bank will forgive the difference. And if you know anyone that thinks the bank will pay for it, let them know I’ve got some cheap beachfront property in Arizona to sell ;)
Since the buyer or bank won’t come up with the difference, you must come up with the difference at the time of the sale. If you can’t pay it from your savings, then you must take out a small loan to pay for the difference.
This may sound somewhat counter-intuitive, taking out a loan to pay for a loan, but it is much easier to pay back a $3,000 loan than an $18,000 loan that has additional costs, such as insurance, maintenance, and storage attached to it.
Think of it as the price for undoing “lifestyle choices” that no longer fit with your current goals in life.
Tip: If you can’t get a loan to cover the difference, you can also get creative and take out the needed amount from your credit card. Then, you can transfer the borrowed amount to another card with a promotional 0% interest transfer offer, which will allow you to pay the money without racking up interest charges. Options will depend on your current financial situation.
Just remember, where there’s a will, there’s a way. Put your thinking cap on, get creative and eventually you will find a way to realize goals worth living for.
Photo by: edkohler