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Pay off car or stockpile cash?

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    Pay off car or stockpile cash?

    This is in regards to looking out into the future. Currently I have $14,000 in student loan debt that I will be getting rid of by the turn of the new year (February at the latest). That will leave me with a few thousand of a cashpile to start 2013.

    By the end of 2013, based on my current budget and how much I'll pay off my car in the next 14months, I'll have roughly $30,000 in cash and owe around $23,000 on my car (4.59% @ 66 months purchased in Oct. 2011).

    My question is should I keep the $30,000, pay my bills normally and continue to stockpile cash/retirement, or should I cut a check for the car in Dec. 2013, leaving myself with 5000-10000 cash depending on my 2013 income varying and then start fresh with no debt?

    If it helps also, I'm 24 years old and am living pretty much at cost of what I can do, working 75 hours a week in two jobs. Monthly expenses, including the student loan payments I'm making right now is roughly $2500-2700 a month while I take in $4800-5300 a month (about a $2500/mo average left over after bills).

    My goal is to move apartments in Jan. 2014 which would increase my housing cost from 750 to 1200-1800 depending on a roommate situation. The increase will be offset by an income increase and the removal of my student loans and will still allow for me to build wealth in both cash and retirement. Obviously with the car paid off, I can do even more, but with it not, I'll have a lot more of a cushion (again, about $20,000 - $30,000 a year).

    Any feedback would be awesome!

    #2
    It's great that you're making enough to pay off your debts faster than planned, so congrats there. my immediate question is what are you currently doing for retirement planning? If you're not doing anything, then at the very least you should be planning to max out a Roth IRA at $5k per year. But ideally, you should probably put some additional funds into a taxable retirement account. You can always make extra car payments to pay the car off early without having to pay it all off in one lump sum. So then you'd get a little of both.

    Either way, if you know you're moving soon and don't yet know the exact cost, there are going to be limits to your ability to plan, as your expenses are unknown.

    But in general, definitely at least start doing something for retirement.

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      #3
      I actually contribute 6% into my company 401(k) which is matched 50%. I just opened a Roth IRA and will probably start maxing that out as well. In addition I have a personal investment account worth about $6000 in individual stocks. Not the best performing thing on the planet but I am planning on liquidating that once I'm closer to even and applying that either to the Roth or Savings.

      I should clarify also that I would again, either use the cash to pay off the car and then move forward, OR, I would like an opportunity to purchase a rental property since it is a seemingly opportune time to do so.

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        #4
        Pay off car

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          #5
          I would pay off the car and make sure you have 6-8 months of an emergency fund. Also your housing should not be more than 25-28% of your total income. Don't expect your income to go up-usually when you think that way it can easily backfire on you.

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            #6
            What's the interest on the car loan? Depending on your investment earnings, it may make more sense to fund a Roth (i.e. if you can earn 8% on the Roth, and are paying 4% on the loan, you're better off funding the Roth for the better income potential).

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              #7
              Originally posted by creditboosting
              You already have a ton of debt in students loans and you plan on buying a new car? I think you should stick with a cheaper car and pay off the student loan first. If you make a late payment on either the auto-loan or the student loan, that little late payment would effect your credit score for the next 7 years. Try to pay off the debt first before buying a few car!
              I think you misread. I already own/have the vehicle being referenced. And I never have been nor never will be late on my payments, for anything.

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