Sarah from Texas recently told The Ramsey Show that she and her fiance are drowning in car debt. Together, they’re paying $1,800 monthly for a 2021 GMC Acadia and a 2015 F-150 — nearly as much as their $2,000 rent. (1)
"Yeah, I know. It’s stupid. I know," Sarah admitted about their car payments.
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With four children, $8,000 in combined monthly take-home pay and credit cards they’ve stopped paying altogether, the couple’s financial situation has reached a breaking point.
How interest rates got so high
Sarah said they have "terrible interest rates" on both vehicles due to their “bad” credit. While she didn’t specify the exact rates, her payment history tells the story: her original payment was $815 monthly on a car she still owes $32,000 on, which suggests an interest rate of around 18%.
However, after falling behind, she was forced into a "promise to pay" arrangement that bumped her payment to $1,100 a month, adding nearly $300 in penalties on top of the already steep interest.
These kinds of rates aren’t unusual for subprime borrowers (those who are higher risk for lenders), as drivers with credit scores between 300 and 500 pay average rates of 15.81% for new cars and 21.55% for used cars. (2) It can even reach well beyond 30%, depending on credit. (3)
Conversely, borrowers with excellent credit scores averaged just 5.18% earlier this year. (2)
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Red flags when buying or financing a car
Sarah’s story highlights several warning signs to watch out for if you’re in the market for a vehicle:
Credit-based predatory lending
Dealerships that specialize in subprime financing often mark up interest rates significantly. A 2021 Consumer Financial Protection Bureau (CFPB) report showed that average subprime interest rates at banks were approximately 10%, compared with 15% to 20% at finance companies and buy-here-pay-here dealerships. (4)
Negative equity rollovers
Both Sarah and her fiance are "upside down" on their loans, meaning they have negative equity, or owe more than the vehicles are worth. This can happen when dealers roll previous loan balances into new car purchases, creating a debt spiral.
Extended loan terms
Longer payment periods may seem attractive with lower monthly payments, but they drastically increase total interest paid and keep borrowers underwater longer.
In fact, 84-month loans reached a record high this year, comprising nearly 20% of new-car financing (which was 15.8% the year before), according to Edmunds. (5) They point out that, on the average 2025 new car loan, $41,473, at the average APR, 7.1%, over the average loan term, 69 months, borrowers pay more than $9,000 in interest. Yet, that same loan at the average 9.4% APR for an 84-month term comes with more than $15,000 in interest.
Add-ons and fees
Subprime lenders may require expensive service contracts, guaranteed asset protection (GAP) insurance or other add-ons that get rolled into the loan principal, inflating both the amount borrowed and monthly payments.
However, the CFPB notes that these products are technically optional (6), even if dealerships present them as mandatory. So, it’s crucial to understand what’s required up front.
For example, it states that if GAP insurance is indeed required, its cost "must be included in the finance charge and reflected in the disclosed APR."
Why buying used and in cash beats new and financed
Ramsey Show cohosts Rachel Cruze and John Delony immediately zeroed in on the real problem: Sarah and her fiance are driving vehicles that didn’t fit their financial reality. The issue isn’t just the interest rates — it’s that they’d bought bigger, newer vehicles than their lifestyle required.
When car payments force you to stop paying credit cards, you’re not just in debt, you’re in a debt trap. But buying used, mid-size vehicles in cash (or with minimal financing) fundamentally changes this scenario.
A reliable used sedan or compact SUV provides the same core function as a newer model without soul-crushing monthly obligations. And modern vehicles are engineered to last well beyond 200,000 miles with proper maintenance. (7)
The lesson: before signing for that bigger, newer vehicle, ask yourself whether it enhances your life — or upends it.
Is a personal loan really the answer?
Cruze suggested Sarah and her fiance explore personal loans at local credit unions to pay off the negative equity and buy cheaper vehicles, emphasizing they’d be "moving it but lowering it at the same time."
Is this actually sound advice? In Sarah’s case, it might be the best option among terrible choices.
Personal loans for debt consolidation typically carry lower interest rates than subprime auto loans, like the 18% Sarah likely pays now. More importantly, her total amount owed would drop dramatically.
However, this strategy only works if the couple commits to behavioral change. Taking out personal loans to escape car debt while continuing to make poor financial decisions would just restart the cycle.
As Delony emphasized, they need to "metabolize" the fact that getting out of this mess requires "36 months of not a lot of fun."
How much can they really free up?
If Sarah and her fiance put in the work to cut spending and aim to follow the expert-recommended 50/30/20 rule (50% of income to necessities, 30% to wants and 20% to savings and debt repayment), they stand to free up a significant amount of cash each month.
Let’s break down some potential savings:
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Car payments $1,800 monthly, eliminated or reduced to perhaps $500, means $1,300 saved.
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Credit card minimums Sarah mentioned they stopped paying these because they were at risk of not making rent. If they’d paid even $300 to $400 monthly in minimums, this could redirect to paying off personal loans faster.
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Day care Although $700 monthly for four kids isn’t high, if one parent could shift work schedules or find remote work, even a partial day care reduction could save them hundreds over the year.
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Discretionary spending After $2,000 rent, $1,800 in car payments and $700 in day care costs, that leaves $3,500 of the couple’s $8,000 monthly take-home pay. Where’s this money going?
The average household spends about $832 monthly on food, according to the U.S. Bureau of Labor Statistics, including both groceries and dining out, but many families can overspend significantly by eating out frequently rather than cooking at home.
Conservative estimates suggest this couple could free up $1,500 to $2,000 monthly by eliminating excessive car debt and trimming other expenses. Over three, albeit, “not a lot of fun,” years, that’s $54,000 to $72,000 — enough to completely transform their financial situation.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Ramsey Show (1); Experian (2); Credible (3); Consumer Financial Protection Bureau (4); Edmunds (5); Consumer Financial Protection Bureau (6); Consumer Reports (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.