Meet Rachel and Mike, a couple in their 30s with three kids. When their third child arrived, they decided they needed a larger vehicle to accommodate their growing family. With limited options, they took out a loan at 10% interest to finance a new SUV. Now, a few years later, they’re feeling the financial strain. Between rising living costs, daycare expenses, and other bills, they’re starting to wonder if they made a mistake by buying the new car. Worse, the vehicle is likely now worth less than what they still owe on the loan, leaving them in a tough spot.

Rachel and Mike’s situation is far from uncommon, especially as families face increasing financial pressures. So, what can they do to lessen the burden? Here are some options they should consider.

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1. Assess the Value of Keeping the Car

The first step for Rachel and Mike is to take a close look at their current financial situation and determine if keeping the car is really necessary. While a larger vehicle is often essential for families, they need to weigh whether the monthly payments and high interest rate are putting too much strain on their budget.

If they can get by with a smaller, less expensive vehicle, downsizing could be a smart move. However, since the car is now worth less than they owe (known as being “upside down” or “underwater” on the loan), simply selling it won’t be enough to cover the remaining loan balance. Before making any decisions, they should check how much they owe versus the car’s market value using online tools like Kelley Blue Book or Edmunds.

2. Refinance the Car Loan

In the past, one of the best options for reducing the financial burden was to refinance the car loan at a lower interest rate. With interest rates having fluctuated in recent years, it’s possible that Rachel and Mike could secure a better rate now, especially if their credit scores have improved since they took out the loan.

By refinancing from 10% down to a rate around 5% or 6%, they could significantly lower their monthly payments. For example, if they have a $30,000 loan at 10% over five years, refinancing to 5% could save them hundreds of dollars each month. However, because interest rates have not substantially fallen yet, this option might not be on the table quite yet.

3. Sell the Car and Pay Off the Difference

If refinancing isn’t an option or doesn’t make enough of a difference, Rachel and Mike could consider selling the car and paying off the difference. Even though they’re underwater on the loan, they could sell the vehicle to a private buyer or dealership, then pay off the remaining loan balance using savings, a personal loan, or a low-interest credit card.

While this might seem like a tough choice, it could allow them to get rid of the burden of high monthly payments and replace the vehicle with something more affordable. They should be cautious with this approach, though—using a personal loan or credit card to cover the remaining balance will still add to their debt. However, if the new payment terms are more favorable, it could be worth considering.

4. Consider Trading It In for a Cheaper Vehicle

Another option is to trade in the car for a less expensive vehicle. While they’re upside down on the loan, some dealerships may still offer trade-in deals that allow Rachel and Mike to roll the remaining balance of their current loan into a new, lower-cost vehicle.

While rolling the negative equity into a new loan isn’t ideal, it could still result in lower monthly payments if the new vehicle costs significantly less than the SUV. This option should be approached with caution, though—Rachel and Mike should ensure that the new loan terms are reasonable and that they’re not digging themselves deeper into debt by trading for a car they can’t afford.

5. Cut Costs Elsewhere to Keep the Car

If downsizing or selling the vehicle isn’t feasible, Rachel and Mike might need to look for ways to cut costs elsewhere in their budget. This could mean temporarily cutting back on non-essential expenses like dining out, entertainment, or vacations to free up more cash for the car payment.

They should also review their household budget to see if there are other areas where they can save, such as shopping for cheaper auto insurance, negotiating utility bills, or finding more affordable childcare options. Even small adjustments can add up and provide some relief from the financial strain of the car loan.

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