Need advice - Payoff loans vs. keep EF

[Well Spent]

Hi Everybody,

I'd like to get some opinions on what my brother should do with his money. Here are the facts that I know.

Savings:
$5,000 in credit union savings account
$5,500 in Bank of America savings account

I don't know the interest he's earning, but I can't imagine it's more than 1%or 2%.

Debt:
$12,000 car loan at about 7% interest rate
$10,000 student loan at about 6% interest rate

He is returning to school this spring and paying cash for his classes going forward. His job involves driving his personal car so that's why he took on a loan for a reliable car.

Should he use any of his savings to pay down his debt faster? Should he move his savings somewhere else?

[disneysteve]

Not enough info.

What is his income now and what will it be after he starts school? What are his living expenses?
You say he will be paying cash for school. How much is needed for school? Will that be coming out of the $10,500 he has in savings?

Too late now but he certainly didn't need to borrow 12K to get a reliable car. There are numerous brand new cars that sell for less than that and he definitely could have gotten a nice used car for half that much. He's probably upside down on the loan, though.

[jIM_Ohio]

agree with steve- more info needed.

I don't see an issue carrying the debt right now.

[Well Spent]

Iincome varies monthly. Average is $2,800.

Income will not change once school starts.

Living expenses are typically $1,800 a month.

School is $2,000 this semester.

Yes.

Car is vital for work.


Question is should he take the risk of having a smaller EF by paying off debt in order to save on interest payments?

Many thanks.

[maat55]

I think I would sell the car and use the BOA money to pay cash for another. I would also work while going to school.

[GREENBACK]

12k seems a little pricey for a car to go from point A to B, if that's all that's needed. I know Mass. is a HCOLA but could he get by with a decent, reliable and cheaper vehicle? I agree with Maat's post if that's the case.

[disneysteve]

Savings:
$5,000 in credit union savings account
$5,500 in Bank of America savings account

Debt:
$12,000 car loan at about 7% interest rate
$10,000 student loan at about 6% interest rate

Iincome varies monthly. Average is $2,800.

Income will not change once school starts.

Living expenses are typically $1,800 a month.

School is $2,000 this semester.

Question is should he take the risk of having a smaller EF by paying off debt in order to save on interest payments?

Income exceeds expenses by $1,000/month. That's a pretty nice cushion.
6-month EF is $10,800, just about what he has in savings right now, and that assumes that all of his expenses are necessary. Most likely, they could be trimmed if needed. I think he needs to come up with a bare bones budget and keep 6-months' worth of that in reserve. Beyond that, he could accelerate debt repayment with what is left from current savings and with some of that extra $1,000/month in income.