Am I hurting myself? - Car Payment

[NetSkyBlue]

It just occurred to me that I'm probably hurting myself by paying extra on my car payment.

Right now, I'm trying to:

1) Build up a buffer of one month's expenses in my checking account

2) Pay off my credit card $1136.28, paying $70 a month until #1 is accomplished

3) Pay off my student loan $2180.11, paying $62.66 a month until #2 is accomplished

4) Save up $10,000 for an efund (will start this after #3 is accomplished)

5) Save up $50,000 for a downpayment (will start this after $4 is accomplished)

(Car should be paid off around the same time as #5 is accomplished)



My checking account pays 3% APY, so I will be doing all my "saving" in my checking account for the interest.

My car loan has remaining $21,285.50 and my payment this month has not yet come due. The loan is at 0.50%

I owe $404.68, but for the last 5 months, I have been paying $425 ($20.32 extra)

If I kept the $20.32 in my account for the remaining 55 months of my loan, I would have the $1117.60 itself, plus over $81 in compounded interest.

Should I stop overpaying on my car loan? Should I start filtering the money into savings, or continue with it in my order above, applying it towards CC and SL's before putting it in efund savings?

The faster I get #1, 2 & 3 done, the faster I can start saving and accruing interest.

(Note: I am currently participating in a 401(k), and will likely end up opening a Roth IRA to contribute that amount to if I change jobs to an employer that doesn't offer a 401(k)...this will probably occur near the first of the year. I don't max this out, because it would probably take me 10 years rather than 5 to save up a downpayment if I did this.)

[disneysteve]

What are the interest rates on the credit card and student loan? I'm guessing that both are higher than the car loan so yes, you are hurting yourself by putting extra toward the car. Of course, you hurt yourself far more by spending so much for the car in the first place. I would consider selling it and buying something cheaper, even if it means taking a small personal loan to cover any difference.

[NetSkyBlue]

No, it really is worth it to me to have the car I truly want. I drive my cars until they won't drive anymore, so I figure I have at LEAST 10 years, maybe 15 in this car.

It truly is worth it to me to wait a few more months on having my downpayment to have THIS car. It will be paid off and still in excellent condition by the time I buy a house. And I will have five years of not being miserable twice a day, driving in a car I'm not happy with. It's worth it to me.

Credit card is 11.24% and student loan is 2.11%

[jpg7n16]

Originally Posted by NetSkyBlue

My car loan has remaining $21,285.50 and my payment this month has not yet come due. The loan is at 0.50%

Originally Posted by NetSkyBlue

Credit card is 11.24% and student loan is 2.11%

Payoff order should go:

1) Credit card
2) SLs
3) Car loan

If you're going to pay any extra, pay them in that order.

I would personally start saving for retirement before paying anything extra on #2 or 3. And I'd try to pay off the CC as soon as possible.

[Shewillbemine]

10-15 years from now you won't be driving the car you want. And that's assuming you can hold off that long. It may only take 5-7 years before you are sick of your car (again).

It's your money, but just suggesting that driving the car you want that you clearly can't afford to pay cash for while you have:

a) Credit Card debt
b) Student loan
c) No property to own

can create a perpetual cycle to never amassing wealth. Why not trade down for a reliable, much cheaper vehicle, reach your financial goals much sooner, and buy the REAL carS you want to drive for the rest of your life? A $21,000 car isn't a crap box but I bet isn't your DREAM, DREAM car.

[NetSkyBlue]

In 21 months, I will have more than enough in the bank to pay off the car in full. But why would I pay off a 0.50% loan when I'm earning 3% in the bank?

And I beg to differ on whether or not I will still love my car in 10-15 years. You don't know me, you don't know my tastes. I hated my previous car when my ex-husband bought it. I hated it when I inherited it in the divorce. And I still drove it until it was breaking down every couple of months and repairs were costing me more than a car payment.

This is one issue I have no intention of budging on - and it's not what I was asking about in the first place.

Credit card should be paid off in full in January, student loan in Feburary. I just wanted to know if it would be significantly to my advantage to stop paying extra on the car.

[disneysteve]

Originally Posted by Shewillbemine

10-15 years from now you won't be driving the car you want. And that's assuming you can hold off that long. It may only take 5-7 years before you are sick of your car (again).

My wife got her current car (a 2000 model) in September 2002 - over 9 years ago.
I got my current car in August 1998 - over 13 years ago.

Some of us actually buy cars that we like and keep them until they die.

[Petunia 100]

You should definately stop paying extra on a loan with a .5% interest rate. The only reason to pay extra on the car loan would be if you had enough to pay in full and just wanted to be out from under it. Send your extra $20 to your credit card instead. Once that is gone, leave your extra $20 in the bank earning 3%.

[jpg7n16]

Originally Posted by NetSkyBlue

But why would I pay off a 0.50% loan when I'm earning 3% in the bank?

That's a good question. Here's another one - why would you keep money in an account earning 3% instead of paying off one that charges 11%?

I just wanted to know if it would be significantly to my advantage to stop paying extra on the car.

Yes it would. Paying it towards the CC instead would be 22x as effective.

[NetSkyBlue]

Originally Posted by jpg7n16

That's a good question. Here's another one - why would you keep money in an account earning 3% instead of paying off one that charges 11%?

The reason I want to get one month's expenses saved in my account before paying off the CC is so that if something else unexpected comes up, I can pay for it, rather than paying some on the card, and then charging some on the card: when an unexpected vet bill comes up, or the vacuum breaks, etc. I just want to feel I have some cushion to prevent me from ever needing to charge these things.

[Andrew Jackson]

Originally Posted by NetSkyBlue

The reason I want to get one month's expenses saved in my account before paying off the CC is so that if something else unexpected comes up, I can pay for it, rather than paying some on the card, and then charging some on the card: when an unexpected vet bill comes up, or the vacuum breaks, etc. I just want to feel I have some cushion to prevent me from ever needing to charge these things.

I don't see why that should be a problem. Just start paying down the card and if something bad happens you have created room on the card to charge more where as otherwise you still would have just had all that debt sitting there to begin with. The key is to get your spending under control which hopefully you have done.

[maraba]

Originally Posted by NetSkyBlue

(Note: I am currently participating in a 401(k), and will likely end up opening a Roth IRA to contribute that amount to if I change jobs to an employer that doesn't offer a 401(k)...this will probably occur near the first of the year. I don't max this out, because it would probably take me 10 years rather than 5 to save up a downpayment if I did this.)

My advice is simple: Pay off your credit card debt first.

[edg126]

What bank do you belong to that gives 3% on checking? ING is only paying .8 on savings now, I want in on that!

It's $22. If you have a 20,000 car loan then $22 probably isn't a big percentage of your salary. I think it's worth doing it that way just to round it up so you won't keep having to check what the minimum dollar amount is, which I guess is what you are doing.

[bjl584]

From a pure interest rate perspective ignoring everything else, then the order should be:

1) credit card
2) student loan
3) car

[Gina23]

Originally Posted by disneysteve

My wife got her current car (a 2000 model) in September 2002 - over 9 years ago.
I got my current car in August 1998 - over 13 years ago.

Some of us actually buy cars that we like and keep them until they die.

I second that motion...

I bought a used 2001 car in late 2002. It's still going and has plenty of life. I'll let you know when I reach the 15 year mark

[NetSkyBlue]

Originally Posted by edg126

What bank do you belong to that gives 3% on checking? ING is only paying .8 on savings now, I want in on that!

It's West Bank "Reward Me Checking". I think it's only in Iowa. I tried to post a link, but the forum won't let me since I don't have 15 posts yet. If you're in Iowa, it's a great deal.

I have a friend who works there who tipped me off about it several years ago, so I switched to their bank. It actually used to be 5% but they lowered it to 3% 2 or 3 years ago.

[BuckyBadger]

Originally Posted by NetSkyBlue

It's West Bank "Reward Me Checking". I think it's only in Iowa. I tried to post a link, but the forum won't let me since I don't have 15 posts yet. If you're in Iowa, it's a great deal.

I have a friend who works there who tipped me off about it several years ago, so I switched to their bank. It actually used to be 5% but they lowered it to 3% 2 or 3 years ago.

I googled!

https://www.westbankiowa.com/personal/checking

I had to put in my zip code (non-Iowa) to get to this page. The requirements are pretty stringent to get the 3%, so it would be hard to just park, say, out of state emergency funds there. They require:

Each statement cycle:

° 12 signature-based debit card transactions

° One direct deposit or direct payment

° Receive eStatement

[NetSkyBlue]

That just figures... I checked my email and I just received one from the bank saying they were lowering their interest to 2% APY 10 days from now. *grumble grumble* Nothing good ever lasts.

[maat55]

Originally Posted by NetSkyBlue

That just figures... I checked my email and I just received one from the bank saying they were lowering their interest to 2% APY 10 days from now. *grumble grumble* Nothing good ever lasts.

Are there swipe requirements on your debit card?

BTW, I agree with Steve, you should sell the car. Prioritization of debt freedom and building an emergency fund should come before a luxury car.

[Eric80]

It would be better if you could start saving however this is a tricky situation as you dont want to fall behind on payments - have you considered getting professional advice, say from the citizens advice bureau - they have some really good resource that you should definitely look into .