Should I sell my car, refinance or trade in?

I am in a weird financial situation and wanted some advice.

First of all my wife and I bought a car two years ago for 2,000 over the MSRP and have a higher interest rate about 10%. So in the two years we’ve had the car we’ve made almost no progress on the principal even with paying $500 in monthly payments. 280 towards principle and 220 towards interest. We currently still owe $23,000. This is ridiculous, we were really dumb and needed a new car at the time because of our second kid. Since I’ve found out about that I’ve wanted to get rid of the car.

Recently we came into $7500 dollars and I am wanting some advice on the best thing to do. These are the options that I can see but there may be other.

• We pay the $7500 towards our current cars principle, sell it and then get a loan for a much cheaper car(we already have an offer for $15,500 from carmax and we can sell it after we put the $7500 dollars into it). This options kind of sucks because we’re out the $7500 dollar and have no car and nothing to show for it but we won’t have the ridiculous monthly car payment.
• We pay the $7500 towards the car, re-finance and keep the car for 5 more years(This isn’t the ideal situation for us because we need a bigger car than this one, kids!)
• We pay the $7500 towards the car and trade it in for a different cheaper car that way we’re not exactly getting nothing out of the deal and we have a larger car which we need.