Save big bucks by downsizing your ride

Dollar bill shaped like a car with quarters for wheels

If you're struggling to keep up with mortgage payments and high gas prices, here's a way to save hundreds of dollars a month:

Downsize your ride.

You may have to overcome an upside-down loan and low resale values for most full-size pickups and sport-utility vehicles -- the prime candidates for such a switch.

But look how quickly the savings add up with a smaller car or SUV:

Lower monthly payments: $247. Let's say you borrowed $30,000 for 60 months at 6% interest. You're paying about $620 a month. Reduce that to $18,000 for 60 months, and you'll pay $373.

Use our auto loan calculator to find out how much you can save each month on your loan. Be sure to check out our data base of auto loan rates to find the best offer near you.

Less costly fill-ups: $93. Drive 1,000 miles a month averaging 15 miles per gallon, and you'll spend $233 a month on gas at $3.50 a gallon. Drive the same 1,000 miles averaging 25 m.p.g., and you'll spend $140.

Reduced insurance premiums: $25. Experts say you can save 10% to 20%. That means your premiums could drop from hundreds of dollars a year for the same coverage, a savings of $25 a month.

Total monthly savings: $365.

That's far more than anyone can save by scrimping on things like eating out or going to the movies.

You could cut your monthly costs even more if your current vehicle is out of warranty and you downsize by buying a less expensive new or a late-model used car or truck that's still covered by a factory guarantee.

Not having to worry about unexpected repair bills is a big plus, and many 2010 and 2011 cars and trucks are backed with basic warranties that last up to five years and 50,000 miles or more.

Of course, there's a trade-off to downsizing your ride -- you'll be getting around in a smaller, less powerful car or truck.

But smaller doesn't mean cramped. And less powerful doesn't mean the best small cars, compact cars, compact wagons and small SUVs aren't a blast to drive.

We think you'll be surprised at how much fun they are -- and how much stuff you can pack into them.

Many people buy a large pickup or SUV for tasks they only do once in a great while, like hauling furniture or tackling a muddy rural road. But they're paying a lot for capabilities they use very little.

Think how much easier it would be to park a smaller SUV at the grocery store or mall. And that's something you do every day.

The biggest hurdle to downsizing your ride will be financial.

According to analyst Ivan Drury at auto industry research company, about 22.6 percent of cars and trucks that are traded in are upside down on their auto loans. The average negative equity amount is about $3,600.

Many lenders used to allow you to roll that negative equity into a new loan on a new car, lending up to 130% of the new car's value.

But you'll have a hard time finding that kind of financing today.

That makes it difficult to get rid of a costly car or truck without spending thousands of dollars in cash to make up the difference.

The good news is the resale value for gas-guzzling pickups and SUVs -- the best candidates for downsizing -- have stabilized in recent months, says Juan Flores, director of vehicle valuation for Kelley Blue Book.

The more prices remain stable instead of declining, the easier it will be to pay down an upside-down loan.

Given that, Consumer Reports recently did a study to determine if, and when, trading in a fuel-thirsty SUV makes sense.

The magazine concluded that it's almost impossible to save enough on gas to make up what you're losing on depreciation if your vehicle is three years old or less.

It recommends holding onto the truck until it's at least five years old, a point when most vehicles are paid off or at least worth more than the remaining balance on the loan.

Here's the bottom line: If you can't afford the payments, and the insurance, and the gas, then you've got to do whatever it takes to replace your expensive ride, even if you have to take a big hit on depreciation.

You need to cut your expenses now, and this is one way to do it.

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