After a lot of consideration and what-if scenarios, I've finally decided what I will do with my car loan. Thank you for all your comments and suggestions on how I should handle the loan. I've decided I would be comfortable with having $10,000 in savings. If I paid off the car loan now, that would leave me around $7,000.
I want to be sure that this loan is gone by the end of the year. In order to accomplish this, here is how I will handle the car loan. I will continue to pay an additional $200-$250 each month in addition to my regular payment. I will also continue to contribute as much as I can to my savings account. Looking at my budget for the next few months, I should be able to save at least $300 a month.
After about 6 months, the numbers should look something like:
- Car Loan Balance: $350/month decrease in principal from regular monthly payment. $200/month in additional principal payments. Car Loan balance should be roughly $20,900.00.
- Savings Account Balance: $300/month deposits, $150/month savings account interest. After 6 months, approximate savings balance should be $35,000.
- Savings Balance $35,000 - Car Loan Balance of $20,900= $14,100.00 left in savings.
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Why, if you've decided you're comfortable with only $10,000 in your EF, are you not putting the rest toward the car loan immediately? You've made the decision, and waiting until you have enough in savings to completely pay off the loan and still have $10,000 left seems really silly. Why not put dump any money over 10K from your EF into the car loan, and then take whatever you wanted to put into savings + your normal car loan amount into making payments to pay off the remainder as quickly as possible?
Sounds like a good plan, though I do have to echo Peter's question as well (or maybe I've missed something?). Are you waiting until interest rates drop a bit more in your savings account?
In any case, paying it off by the end of the year is awesome. Good luck!
Good plan.
How much interest would you save if you paid your car loan off now instead of 6 months from now?
If you paid off your car right now, you could direct the $1105 ($555+$250+$300) towards your savings. You would build your savings back up to $10K in about 3 months. And if you incorporate the $150 in interest your getting in your savings account then you would reach $10K in even less time.
Think about it: If only $350 of your $555 car payment actual goes towards the principal then you would be losing $1230 by waiting the extra 6 months.
I'm with Peter, if you're happy with 10K in savings why not pay anything over that straight into your car loan & save on the interest accruing while you're at it?
If you do have something come up, just go back to regular car payments & then you wouldn't even need to touch your 10K?
Your call, you would save more and paying it off faster the other way, but your finances have to work for you. You are doing great!
I'm with Peter, too. Do the math, and I think you will be too.
i have a question. i'm getting a year end bonus check in a few days of a couple thousand dollars. i unfortunately don't have the luxury of having a lot of money in my savings right now. how should i spend my bonus? put it all towards savings? split it up toward my car and other debt? any help would be appreciated. thanks.
@getoutofdebt08: I would need more information on your situation to be able to give you a good answer. Send me an email with more information and let me know if you want to post it for everyone to answer.
great....i just sent u an email...thanks!