Another Truck Debt question

[JD2775]

Ok here is my situation...

40 years old, single, renter in the Bay Area, CA.

Income- 98,500 gross
401k - maxed out at $18k (150k balance)
Roth IRA - maxed out at $5500k (22k balance)
(I just started maxing those out about a year ago, as I had a uh-oh Im 40 years old panic moment. Im hoping by 45 years old I will be in better shape retirement savings wise given this new approach)
Emergency Fund- 13k

Take home pay - approx 4500/month
Expenses:
Rent $1250
Truck Payment (see below)
Phone $85
Netflix $7.99
Electricity/Garbage/Water approx $80
Credit Card - $700-$800/mo (this includes everything. Gas, Food, any Entertainment, Clothes etc. I usually just use my card and pay it off every month)

Debt- Truck @ 13k @ 3.9%. I bought the truck in Jan 2014, put 7k down and financed 24k. I know, not the smartest thing to do at the time but lesson learned. I love the truck (Toyota Tacoma) and will keep it for many years. My original payments were $450/mo but I have always paid higher every month....

No other debt.

My dillemma is I really want to pay off the rest of the 13k and be done with it. I have about $1350/month to allocate to Truck and Emergency Fund. Here are the options I am considering.

Option A (what I just started doing). Pay $1150/mo into the truck, $200 mo into my Emergency Savings (just to keep that going). Truck will be paid off in October 2016 (2 years, 10 months total on the loan)

Option B - pay 1350/mo into the truck, discontinue EF savings for now. Truck will be paid off in August 2016. (2 years, 8 months total on the loan)

Option C - pay 1350/mo into the truck, discontinue EF savings for now AND take 3k out of EF and put into truck. Truck will be paid off in May 2016. (2 years, 5 months total on the loan)

Option D - throwing this in there in case my thinking is totally wrong. Go back go $450/mo, ignore the desire to pay it off quicker, and put the extra money elsewhere?

Any advice? Thanks!

[Jluke]

Ok here is my situation...

Option D - throwing this in there in case my thinking is totally wrong. Go back go $450/mo, ignore the desire to pay it off quicker, and put the extra money elsewhere?

Any advice? Thanks!

As I don't know the whole financing story, based on what you did provide I'm guess-timating that you "only" have around $450-500 to go in interest if you pay $150 extra per month starting now till the end of the loan terms (assuming 5 years).

Option 1: Open a taxable investment account , add money there, and become a boglehead.

Option 2: Pay a lump sum now from the EF, say 4k-5k, and continue on with payments of $600/month. That should wrap the loan up late 2016 and only cost you about $150 in interest for 2016. Rebuild your EF each month.

Try to see where you will get the most bang for your buck - is it paying off the truck faster or investing your money elsewhere?

[bjl584]

Option D might not be a bad strategy if you don't mind having some debt for the next few years. You can most likely beat 3.9% by investing.

[tripods68]

)
Emergency Fund- 13k


My dillemma is I really want to pay off the rest of the 13k and be done with it. I have about $1350/month to allocate to Truck and Emergency Fund.

Any advice? Thanks!

Option: Dave Ramsey approach

Pay off the truck using $12K of your EF TODAY. $1000 is for EF left. Pay the rest of it the following pay period but not going out for a month. Rebuilt your EF to 6-months of expenses.

[JD2775]

Option: Dave Ramsey approach

Pay off the truck using $12K of your EF TODAY. $1000 is for EF left. Pay the rest of it the following pay period but not going out for a month. Rebuilt your EF to 6-months of expenses.

That is tempting yet frightening at the same time.

Good advice from everyone, I have to think about this.....

[LivingAlmostLarge]

Pay off truck. You are maximizing retirement right now, do you have an employee stock purchase plan (ESPP) at work? If so max that out it's usually a guaranteed 15% return.

I'd pay off truck and use the rest of the money to rebuild the EF. Looks like your 6 month EF Is minimal anyway.

[pflyers85]

Pay off truck. You are maximizing retirement right now, do you have an employee stock purchase plan (ESPP) at work? If so max that out it's usually a guaranteed 15% return.

I'd pay off truck and use the rest of the money to rebuild the EF. Looks like your 6 month EF Is minimal anyway.

I would agree with this as well. The OP is a single, renter. Not to jinx anything (knock on wood) but there shouldn't be as many costly emergencies that could pop up for him in the short run compared to someone married with children that owns a home. Once the truck is paid for it would only take about 10 months to get the EF funded back to where it is today. Plus with no monthly truck payment if a small emergency were to pop up it is likely that it could be cash flowed given that the OP said he could contribute as much as $1350/mo to his truck payment.