Pay off the car or not?

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Wallyt4r
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Pay off the car or not?

Post by Wallyt4r » Fri Oct 27, 2017 2:56 am

First post and glad to be here. I am looking for some advice. I currently have only one debt, my last mistake from a past life. It's on a car and the balance is a little less than $24,000. Yes it's a lot and most might say to sell it and buy a cheaper used car. I have my reasons for keeping it. Anyway, I am thinking about paying this loan off asap with money from my emergency fund of $24,000. This of course will leave me temporarily with no e fund. I also have stocks so if it's a real emergency I can cover it. I plan to only keep $5000 in the e fund after this loan is gone and attempt to finally max my 401k after getting rid of this loan. I have not been able to max the 401k due to trying to get this final debt paid. The payment is $500 a month of which $81 goes to finance charges. I hate finance charges and will never have another car loan after this. So my question is, should I take my cash reserves and pay off this loan now or just keep making the payments and invest my cash reserves minus $5000 for emergencies? Thank you for your help and advice.

chevca
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Re: Pay off the car or not?

Post by chevca » Fri Oct 27, 2017 6:10 am

What is the interest rate on the car loan?

magicrat
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Re: Pay off the car or not?

Post by magicrat » Fri Oct 27, 2017 6:50 am

Neither. Cut spending and pay off the car loan quickly.

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knpstr
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Re: Pay off the car or not?

Post by knpstr » Fri Oct 27, 2017 7:00 am

If you want to keep your emergency fund at $5,000 then do so now.

Take the excess $19,000 and put towards the car loan. Then pay off the remaining $5,000 by paying extra on it each month.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

headingboogle
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Re: Pay off the car or not?

Post by headingboogle » Fri Oct 27, 2017 7:12 am

Absolutely keep an emergency fund.

If $5k is what you want for an emergency fund, ask yourself this:

How long will it take you to save up $5k? How much interest, in dollars, would you lose in that time frame? I'm guessing it's not a lot.

I'd advocate paying off the loan until the loan balance is $19k, then pay it off and still have your $5k leftover. This is the safest way.

I was in a similar situation earlier this year. Almost immediately after paying off the vehicle loan I had a pretty large unplanned emergency house expense. Mr Murphy comes at the worst times, of course!

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djpeteski
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Re: Pay off the car or not?

Post by djpeteski » Fri Oct 27, 2017 7:29 am

It really depends on you. How often do you dip into your emergency fund when a legitimate emergency occurs?

If you are like my wife and I the answer is: almost never. When we needed a 1600 garage door repaired, we cash flowed it. Same when we had to replace the dryer. When we had to replace a car that died, well then we dipped in to the efund, but had it paid back quickly.

If you are like that, then go ahead and be debt free today. Work like crazy to get it built back up. Then: Contribute to your 401k and other investments with impunity.

Good work on putting yourself in this position.

ImUrHuckleberry
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Re: Pay off the car or not?

Post by ImUrHuckleberry » Fri Oct 27, 2017 7:50 am

djpeteski wrote:
Fri Oct 27, 2017 7:29 am
It really depends on you. How often do you dip into your emergency fund when a legitimate emergency occurs?

If you are like my wife and I the answer is: almost never. When we needed a 1600 garage door repaired, we cash flowed it. Same when we had to replace the dryer. When we had to replace a car that died, well then we dipped in to the efund, but had it paid back quickly.

If you are like that, then go ahead and be debt free today. Work like crazy to get it built back up. Then: Contribute to your 401k and other investments with impunity.

Good work on putting yourself in this position.
What did you do when it took 6 to 12 months to recover from an unexpected job loss with a minimal severance package?

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lthenderson
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Re: Pay off the car or not?

Post by lthenderson » Fri Oct 27, 2017 8:32 am

I lost my job once about 20 years ago and I had a lot more than $5k in my emergency fund and barely squeaked by that episode. Fortunately I was single, owned my car outright and rented back then.

Flash forward to this past summer my 10 year old vehicle was totaled out in a freak huge hailstorm and suddenly I had to cough up another $25k besides the $5k insurance check to get another vehicle. I was fortunate that I learned my lesson the first time around and had more than enough in my emergency fund to cover that and still have plenty of money left should another freak thing occur.

There is no way in heck I would be comfortable with even a $5k emergency fund unless I was a monk living in a monastery somewhere. I would reduce spending and pay down your car debt without touching the emergency fund. Also, I don't think paying down a car loan is considered an emergency to begin with.

mortfree
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Re: Pay off the car or not?

Post by mortfree » Fri Oct 27, 2017 8:41 am

not enough info, but I'll try...

I wouldn't pay it off completely since it would deplete your EF.

it's good that you have one debt, but 24k in EF would be minimum I'd want.

Consider instead paying $750 or $800 or $900 or $1000 per month.

You also claim that not having that $500/month payment would let you contribute more to retirement.

Something else you could try would be to increase your contributions and make up for that lost income with your EF. That may be a little scary though depending on how much you'd have to dip into it.

again, need more info.

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djpeteski
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Re: Pay off the car or not?

Post by djpeteski » Fri Oct 27, 2017 9:24 am

ImUrHuckleberry wrote:
Fri Oct 27, 2017 7:50 am
djpeteski wrote:
Fri Oct 27, 2017 7:29 am
It really depends on you. How often do you dip into your emergency fund when a legitimate emergency occurs?

If you are like my wife and I the answer is: almost never. When we needed a 1600 garage door repaired, we cash flowed it. Same when we had to replace the dryer. When we had to replace a car that died, well then we dipped in to the efund, but had it paid back quickly.

If you are like that, then go ahead and be debt free today. Work like crazy to get it built back up. Then: Contribute to your 401k and other investments with impunity.

Good work on putting yourself in this position.
What did you do when it took 6 to 12 months to recover from an unexpected job loss with a minimal severance package?
So that did not happen, admittingly, however our budget and spending are such that we can live off of like 30K/year and could probably cut deeper than that. We followed the Dave Ramsey plan, pretty closely, while we were in the consumer debt pay off stage we had only 2K in an emergency fund.

During this time we were, however, hit with a major emergency for the size of our fund. We had kind of a terrible accountant and he informed us on March 22nd (in the evening) that we owed the IRS about 12K. We had 24 days to come up with the money and we each would be paid only once. Earlier that day I had made a very large payment on one of our loans. Had I known this that money could have been used to pay the IRS.

Guess what? We did it, we cut back, sold stuff on ebay and found had the money.

mega317
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Re: Pay off the car or not?

Post by mega317 » Fri Oct 27, 2017 1:07 pm

I don't think most would say to sell it. Usually the transaction costs are not worth changing cars even if you made a mistake.

My answer will depend mostly on the rate, but I'd say step 1 is decide how big of an emergency fund you want, and step 2 put whatever is left into the car.

Wallyt4r
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Re: Pay off the car or not?

Post by Wallyt4r » Fri Oct 27, 2017 11:42 pm

chevca wrote:
Fri Oct 27, 2017 6:10 am
What is the interest rate on the car loan?
4.6%

mega317
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Re: Pay off the car or not?

Post by mega317 » Sat Oct 28, 2017 12:15 am

How's your credit? I just got an offer in the mail from a credit union near me to refinance my car to 1.39% plus $100 if I open an account with them.

Wallyt4r
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Re: Pay off the car or not?

Post by Wallyt4r » Sat Oct 28, 2017 12:15 am

Thank you all for your great and thoughtful replies. This is why I joined this place after lurking for a while and seeing how everyone supports each other. Very refreshing. Forgot to mention in the original post that I do have about $17k in Vanguard Total Stock Market fund so if a large emergency came up I could sell some of that. Of course I don't want that but it is there. If we count that and the $5k I will keep in cash the EF is still $22k. I am leaning towards paying $19k to the loan with the cash I have on hand and then quickly paying the rest over a few months. It's just so hard to let go of so much money at once cuz it takes a while to accumulate that much, that is why I asked what you all would do. Thanks again!

Wallyt4r
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Re: Pay off the car or not?

Post by Wallyt4r » Sat Oct 28, 2017 12:18 am

mega317 wrote:
Sat Oct 28, 2017 12:15 am
How's your credit? I just got an offer in the mail from a credit union near me to refinance my car to 1.39% plus $100 if I open an account with them.
My credit is 800 plus. That is a very good rate your CU is offering. I can't get that here, not even close. I looked into refi but again am just leaning towards dumping the debt.

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wander
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Re: Pay off the car or not?

Post by wander » Sat Oct 28, 2017 12:32 am

If your job is stable, you should pay it off.

tampaite
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Re: Pay off the car or not?

Post by tampaite » Sat Oct 28, 2017 6:29 am

wander wrote:
Sat Oct 28, 2017 12:32 am
If your job is stable, you should pay it off.
Same advice here. Write the check and be done with the loan.

westrichj312
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Re: Pay off the car or not?

Post by westrichj312 » Sat Oct 28, 2017 6:36 am

easy one pay it off.

gclancer
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Re: Pay off the car or not?

Post by gclancer » Sat Oct 28, 2017 6:53 am

knpstr wrote:
Fri Oct 27, 2017 7:00 am
If you want to keep your emergency fund at $5,000 then do so now.

Take the excess $19,000 and put towards the car loan. Then pay off the remaining $5,000 by paying extra on it each month.

:beer
+1

chevca
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Re: Pay off the car or not?

Post by chevca » Sat Oct 28, 2017 9:58 am

Wallyt4r wrote:
Sat Oct 28, 2017 12:15 am
Thank you all for your great and thoughtful replies. This is why I joined this place after lurking for a while and seeing how everyone supports each other. Very refreshing. Forgot to mention in the original post that I do have about $17k in Vanguard Total Stock Market fund so if a large emergency came up I could sell some of that. Of course I don't want that but it is there. If we count that and the $5k I will keep in cash the EF is still $22k. I am leaning towards paying $19k to the loan with the cash I have on hand and then quickly paying the rest over a few months. It's just so hard to let go of so much money at once cuz it takes a while to accumulate that much, that is why I asked what you all would do. Thanks again!
That sounds like a good plan to me... especially at 4.6% on the loan.

When you get the loan paid off soon, you will get a good feeling that outweighs the pain of getting rid of that much at once. :happy

DrGoogle2017
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Re: Pay off the car or not?

Post by DrGoogle2017 » Sat Oct 28, 2017 2:55 pm

Wallyt4r wrote:
Fri Oct 27, 2017 11:42 pm
chevca wrote:
Fri Oct 27, 2017 6:10 am
What is the interest rate on the car loan?
4.6%
You can refinance your car with better used car rate from PenFed.

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CAsage
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Re: Pay off the car or not?

Post by CAsage » Sun Oct 29, 2017 9:02 am

This might be one of the rare places where those interest-free cash advance checks could be used. I get offers from BofA or my CU for "free" advances which of course actually only cost you the 3% fee. Well, 3% is less than 4.6% and you could then pay off the car in one year. Just a thought - only for the very careful!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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N1CKV
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Re: Pay off the car or not?

Post by N1CKV » Mon Oct 30, 2017 7:56 am

Wallyt4r wrote:
Sat Oct 28, 2017 12:15 am
It's just so hard to let go of so much money at once cuz it takes a while to accumulate that much, that is why I asked what you all would do.
This statement tells me you need to take a step back and re-think how you spend money. YOU ALREADY SPENT THIS MONEY. Any time you finance something you are spending money. You went to someone, borrowed money, then turned around and spent it. Done. At this point you are enslaved to the lender by your promise to pay them back with future earnings. By delaying that pay back you are only prolonging your agony.

I am sorry if that sounded harsh. I am not trying to be mean. I am only trying to give you something to think about as you move forward in life making purchases.
I have met a lot of people that claim to love money, but they also seem to be the same people that are in the biggest hurry to get rid of it.

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BL
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Re: Pay off the car or not?

Post by BL » Mon Oct 30, 2017 8:13 am

DrGoogle2017 wrote:
Sat Oct 28, 2017 2:55 pm
Wallyt4r wrote:
Fri Oct 27, 2017 11:42 pm
chevca wrote:
Fri Oct 27, 2017 6:10 am
What is the interest rate on the car loan?
4.6%
You can refinance your car with better used car rate from PenFed.
+1
A small donation makes you eligible to join this Credit union.
https://penfed.org/auto

mega317
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Re: Pay off the car or not?

Post by mega317 » Mon Oct 30, 2017 8:33 am

N1CKV wrote:
Mon Oct 30, 2017 7:56 am
YOU ALREADY SPENT THIS MONEY.
Good point. And you're spending even more to delay paying it back.

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sunny_socal
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Re: Pay off the car or not?

Post by sunny_socal » Mon Oct 30, 2017 8:44 am

I'd refi to a low rate of 1.5% and pay it off over time.

Reasons:
- You can get 1.5% just by letting your EF sit in in some MM account. You can get much more if you buy a CD.
- For some reason auto loan rates are great!

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