http://articles.moneycentral.msn.com/SavingandDebt/SaveonaCar/TheRealReasonYoure
Broke.aspx

For a huge number of troubled debtors, it all began with a car. Too
much car, financed too long, traded too soon.

By Liz Pulliam Weston

If you're constantly broke and can't figure out why, the answer may be
sitting in your driveway.

Americans are spending more on their vehicles than ever before -- more
than $8,000 a year on average -- and it's driving some to the breaking
point.

Credit counselor Bill Thompson of Jacksonville, Fla., estimates that
one out of every four clients his agency sees has overspent --
sometimes dramatically -- on a car.

"They may be spending 15% to 20% of their (take-home) pay on just the
car payment," said Thompson, who supervises credit counseling for the
nonprofit Family Foundations, "and that doesn't include insurance,
gas, maintenance and all the other costs of owning a vehicle."

And sometimes there's more than one whopping payment. Sandra McGeary,
a counselor at Consumer Credit Counseling Services of Western
Pennsylvania, says she regularly sees middle-class families struggling
with two payments in the $400 to $500 range. The burdens are so big
that it doesn't take a major disaster, like a job loss, to send them
over the edge.

With most other areas of the budget, you can find ways to trim. You
can eat out less and shop more carefully to reduce your food bill. You
can lower utility bills by adjusting the thermostat. You can cut your
entertainment budget by canceling your cable service and borrowing
movies from a library. You can even reduce your shelter costs by
taking in a roommate or moving to cheaper digs.

Once you've committed to a car payment, though, your options are few,
particularly if your loan is greater than the car's value. Whether you
drive it or not, you've got to make the payments, and you've got to
insure it.

We're prolonging the agony
The signs of vehicular overspending are everywhere:

   * Average transportation spending grew more than 12% between 1999
and 2005, according to the U.S. Bureau of Labor Statistics, at a time
when median income growth was basically flat. Even when adjusted for
inflation, we're spending more: 8.3% more in 2005 than in 1995, with
people in the lowest and highest income brackets accelerating their
spending the most.
   * More than 80% of car loans are for terms longer than four years
(which, a couple of decades ago, was considered a long loan). The
average loan term has grown from just under four years and seven
months in 1990 to over five years and four months in 2006. Longer loan
terms mean that people build equity in their car more slowly, which in
turn means that borrowers will be "upside down" on their vehicles --
owing more than they're worth -- for three years or more on the
typical purchase.
   * One out of four -- 25.6% -- of cars that are financed include
debt rolled over from a previous vehicle, according to vehicle
research site Edmunds.com. By the end of last year, the average amount
of negative equity in these deals was more than $4,000.
   * Rolling debt from one car to another is, in case you didn't
know, a terrible idea. You'll pay higher interest rates because so
much of what you owe isn't secured by the car itself.

And being "upside down" can really leave you up a creek if the car is
totaled or stolen. You can protect yourself somewhat with so-called
gap insurance, which covers the difference between what you owe and
what you get from your insurer, but that's another hit on your wallet.