How should I attack my truck debt?

[A-Aron1]

Hello everyone,

It's been a little while since I've posted. I really appreciated the advice I received last time I had a question. Here is where I'm at today...I just bought a 2010 Ford F150 pickup with 75k miles for $20,000 (OTD). I financed the truck on a 4 year note at 1.45%. I love the vehicle so far and am just wondering how I should go about paying off the loan. Little background on me:

25 years old
Will make about 55k this year (down from past years)
Roth IRA- 28k
401k- 24k
Taxable brokerage account- 13k
Pension plan- 5.5k
Savings- 40k (half earmarked for house down payment and other half EF)

Should I just make the payment for 4 years, drop a chunk on it then continue to make payments, or just pay it all off now and deplete EF??? Thanks everyone


Aaron

[snafu]

I hope you enjoy the truck and that it serves you well. As you are at the beginning of this 48 month loan, don't jump off the deep end and decimate your EF. A lot can happen over 4 years. You didn't mention your down payment or specific monthly payments or how they fit in your month-to-month budget.

What percentage of income does that payment represent? How much do you need to budget to cover increased costs of truck insurance, operation and maintenance? Did you sell or trade an existing vehicle to create a downpayment? Will the truck create an opportunity to generate more income? Can you operate a small delivery or hauling service evenings or weekends for example?

Are you willing to take on some type of part time work whose income will help accelerate truck pay out? Sorry for so many questions but those answers are needed to formulate your best choices.

[A-Aron1]

I hope you enjoy the truck and that it serves you well. As you are at the beginning of this 48 month loan, don't jump off the deep end and decimate your EF. A lot can happen over 4 years. You didn't mention your down payment or specific monthly payments or how they fit in your month-to-month budget.

What percentage of income does that payment represent? How much do you need to budget to cover increased costs of truck insurance, operation and maintenance? Did you sell or trade an existing vehicle to create a downpayment? Will the truck create an opportunity to generate more income? Can you operate a small delivery or hauling service evenings or weekends for example?

Are you willing to take on some type of part time work whose income will help accelerate truck pay out? Sorry for so many questions but those answers are needed to formulate your best choices.

These are all good questions and I appreciate the advice, snafu. I didn't put anything down with the idea that I may at some point through a chunk of money at it to to pay it down quicker (5 or 10k). The payment is $430/month right now with $75 for insurance. I didn't have a trade in as the car that I'm driving now was on its last leg and isn't worth much. I work mostly on commission so it's difficult to know from month to month how much I will have coming in...I'm assuming that if I have another down year I can bring in about what I did this year. I tent to live fairly frugally.

As far as generating extra income...I don't think I would do that. Any extra time devoted to additional work I would probably use to try and generate more income from my primary job.

Aaron

[Jluke]

The payment is $430/month right now with $75 for insurance.

I would simply round up to $500/month... or $475 or $450. Pick one and stick with it. you'll knock a few months off the loan term. I wouldn't be in a hurry to pay this off.

Your savings will have a far better impact if put towards a down payment on a home. Seriously look into a 15 or 20 year mortgage with at least 20% down. If you take out a 30-year loan, you will be paying so much in interest that you'll look back and laugh at how little the car interest had an impact on your overall financial picture.

Great job on saving on numerous fronts - esp at 25. keep it up!

[autoxer]

Should I just make the payment for 4 years, drop a chunk on it then continue to make payments, or just pay it all off now and deplete EF??? Thanks everyone

With such a low interest rate, there isn't much financial incentive to paying it off early. But it is pretty rewarding to shed debt. I would say, that if you can knock it out with a lump sum and still meet your other financial goals, then don't hesitate. Have you planned out the house purchase? Are you saving an appropriate percentage into the long term retirement accounts?

[JoeP]

A rough calculation shows that your loan will cost you about $597 in interest. Just for comparison, a 7% car loan a while back would have cost you almost $3000!

Since the amount to service your loan is so low, I would not bother running down your other balances for this. However, I absolutely would squirrel some money away each month to a "Truck Fund" to provide money for repairs, inspection, tires (or "tars" if you're down south), oil changes, etc.

And as other would also advise, after you are done paying the bank for your truck, keep paying yourself so that you will be able to use that money as a down-payment (in addition to equity from your truck trade) for your next vehicle.

[tripods68]

I think you are doing good in your finances. I assume you have no other debt except this new vehicle. You mentioned that you can work OT which you should definitely do to earn extra cash in paying off the truck faster. You also have some cash set aside for EF/down payments. I would probably use 5K towards of it. You can rebuild EF faster once the truck debt is completely done.

[A-Aron1]

Thank you everyone for all the advice. I definitely appreciate it!!! Personal finance definitely feels overwhelming at times.

When I do purchase a home (probably in the next 2 years or so) I was planning on just putting 20k down. It does now appear that I need to add to that number.

Current retirement contributions are up to the employer match in a ROTH 401k (putting in 6% of income), maxing out a ROTH IRA at $5500/year, and about $5200/year into taxable brokerage account. I suppose I could use the brokerage account to assist with a house down payment.

I don't have any other debt except for the truck loan. I'm not sure how much extra wiggle room I'm going to have to throw extra cash at the truck. I work on mostly commission so it's difficult to know when extra money will be coming in.