I have been contemplating taking the plunge and paying off my car loan. For simplicity, let's say I owe $27,000 (it is actually a little less). The interest rate on this loan is 8.43% and the monthly payment is $555.91. I have been thinking about taking the $27k from my savings and paying off the loan. This will free up a huge amount of money each month to use for paying off my remaining credit cards and increasing my savings and investments. I have about $39k in cash in a checking/savings account paying 5.05%. I know purely looking at the numbers, it makes sense to pay off the car loan as the rate is higher than my savings rate. But for me, there is a psychological aspect. I am so scared of running out of money and having to live paycheck to paycheck or even worse, losing my job and not having money to pay my bills that I am willing to keep this debt for a little longer (no more than 2 yrs). I feel I need to have at least $35k in cash at all times to feel somewhat secure should something major happen. I also have an investment property which adds to the need to have more liquid cash.
If you were me, what would you do?????