Being "upside down" on your auto loan means that you actually owe more on the car than it's worth. It's not uncommon to be in this situation, and if you plan on holding onto the car until it's paid off, it's really not a problem. But if you've run into tough times and need to sell the car to get rid of debt, you could be in a situation of selling the car and still owing money on it.

Some people in this situation decide to trade in the upside down car and roll the difference into the new loan, but this can be a vicious cycle. They can get more and more upside down with each trade.

If you can handle the payments okay but just want a shinier, new toy, unless you can afford to pay off the difference, it's better in most cases to bite the bullet and pay the car off. If you're having a hard time handling the payments, you can try to refinance the vehicle. This could mean extending the life of the loan or lowering the interest rate. Keep in mind that if you extend the life of the loan, you could pay considerably more in interest rates.

If you're considering consolidating your unsecured loans, it's possible that you could add the car loan to the mix. You could also end up paying more interest under this scenario, but you could come out with one lower payment for most of your debt.

At any rate, it's important to consider that most lenders don't want your car back through repossession because they lose money. They would like to avoid the hassle of taking the car, selling it, and going after you for the difference. In most cases, the lender would rather get the total amount you owe and work with you.