#DebtFree #CarPayments #FinancialFreedom
Hey everyone! 😊
So, I’ve been juggling a summer job alongside my main gig to pay off my wife’s car. It’s a sleek 2022 Hyundai, and we still owe about $19k on it, with 5 years left on the loan. My monthly payments are around $447, and the APR is just over 6%.
Here’s where I need your insights: Should I pay off the car early?
I have enough saved up to wipe out that debt, and while being free of car payments sounds like pure bliss, I can’t shake off the feeling that I could put that $19k to better use elsewhere. 🤔
Here are some thoughts bouncing around in my head:
- Peace of Mind: The idea of not having a car payment is super appealing. Imagine what it would feel like to have that extra cash each month!
- Interest Savings: Paying off the car might save us money in the long run if we factor in the interest. However, could those potential savings be negated by investing the money elsewhere? 💰
- Opportunity Costs: With $19k on the line, I keep thinking about investments or other financial opportunities that could yield a better return. But then again, we all know how unpredictable those can be.
Right now, I’m comfortably handling the current payments, but I’m leaning towards wanting to be debt-free. It feels liberating!
I’d love to hear your thoughts on this dilemma. Have you ever been in a similar situation? Here are a few questions to guide our conversation:
- What factors do you consider when deciding whether to pay off a loan early?
- Have you found that paying off debt early was worth it for your peace of mind?
- Or do you think investing that cash could bring in better returns?
Share your experiences or tips! Let’s see what different viewpoints we can gather on this. Your advice could really help me weigh my options! 🙌
Thanks, everyone! Looking forward to the discussion!
If you can pay it off and still have several months worth of expenses in savings in case of emergency/unexpected bill then I would pay off the car. For two primary reasons. 1) 6% interest isn’t particularly low. Sure over 10-20 years you are likely to beat that in the stock market, but not over the short-term. 2) Your car could be in an accident on any given day and then maybe it is only worth a few thousand dollars. If you woke up tomorrow and your car was rear ended and worth 2k you’d still have to pay off the 19k loan. What if that happened after you just had an emergency bill and now your savings is low and you can’t just pay it off? Now you’d be paying for a car that you don’t even own/can’t drive anymore.
TL;DR: When you have the opportunity to pay off a car loan and still have appropriate savings left over take the opportunity.
If your lender doesn’t penalize you for early payment, pay that thing off ASAP.
What’s your retirement savings rate? While not low, the loan rate is low enough to prioritize retirement savings.
If you pay car off. Will you invest the money into an account or just spend it. I personally always like to have cash available for the unexpected bills that just show up. The water heater goes out, the A/C needs to be repaired. Good fun times like that.
Where do you currently have the money? If it’s not in an investment making more than the 6% then you are losing money on it. Even if it’s a bit over 6%, you pay taxes on the money earned and also have the risk involved.
At 6% I would just prioritize paying it off. If it was 5% then I would be doing something in the market.
That money is currently in a HYSA that pays 4.5%
6% is high enough, I would either pay it off or put half the 19k into it and put the rest in an HYSA/investment and see what happens. And maybe finish the car off next year.
I just figure that if it is paid off, that monthly amount can be used for something else.
I would go with the following priorities:
1. Emergency fund
2. 15% of gross income going into retirement accounts (401K, RothIRA)
3. Paying of the car faster
My reasoning is that your emergency fund is what helps keep you stable when life crap inevitably happens, to have a decent retirement you need to put money away early and often, and although the interest rate on your car is higher than a HYSA, it’s not terrible, so I wouldn’t sacrifice my EF or retirement savings to pay it off faster.
Once the car is paid off, reassess your goals and decide where to put the money that is now not going toward the car.