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Pay off car or just continue payments?

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  • #1

    Pay off car or just continue payments?

    Hello. My husband and I just purchased a new vehicle a few months back. We now have two car payments, one on a 2006 Kia Spectra and another on a new Kia Optima. The Spectra is $295.00 a month with $9,800 remaining at 8.65%. The Optima is $206.00 a month with $10,500 remaining at 5.99%.
    I am wondering if we should use our savings to pay off at least one of these loans. I would prefer to pay off the Spectra freeing up $295.00 a month. I guess it is just difficult to see that much money leave the savings account.
    Would it be beneficial to pay off one of these loans, perhaps both, and in what order? Thanks for any advice.

    Jennifer
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  • #2
    If you can pay off the 8.65% loan and still maintain a decent emergency fund, definitely do so. I'm sure your savings aren't earning anywhere near what that loan is costing you. Even if your EF would be mostly depleted, you can use the $295/month to replenish it.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
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    • #3
      I second Steve.

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      • #4
        Thank you for replying. M husband decided I should make the final decision, as he doesn't really participate in the finances and where money is allocated monthly...he just works and gets paid...lol.

        So, I was considering paying off both cars within the next month. We have the available funds in a savings account but the account will obviously become significantly reduced. Paying off both cars will require $20,000 which is about 40% of the money in the savings account. This will allow us to free up $500 a month which will be added back to the savings account to earn interest, rather then paying interest from having the car payments. Does this make sense?

        I am going to have a really difficult time removing such a large amount of money at one time, especially since it will take years to rebuild the account to the current amount.

        Any opinions?

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        • #5
          We almost did this last year and it was tempting. Pay off the loan of a Ford truck - a 5 year loan. It would have freed up $400.00 per month. I thought we would have had a lot of extra money to immediately pump into the ef.

          We did not end up doing this.

          Then we ended up with: a failed air conditioner, an expensive car repair, and emergency room visit with a deductible and very high vet bills.

          If we had paid off the car we would have gone back to credit cards to cover these expenses.

          Better to have the ability to pay the car payment monthly in your ef then to have it paid off and deplete your ef.

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          • #6
            Originally posted by jenn_1022 View Post
            Any opinions?
            What matters isn't what % of your savings will get used up. What matters is if what remains represents an adequate EF for you. If the 60% that is left will be at least a 3 month EF, I'd say to go for it.
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

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            • #7
              Originally posted by PetMom View Post
              We almost did this last year and it was tempting. Pay off the loan of a Ford truck - a 5 year loan. It would have freed up $400.00 per month. I thought we would have had a lot of extra money to immediately pump into the ef.
              As stated it's important to have a adequate EF already in place to do this. Yes, you free up money but who knows when a real emergency will actually come along.
              "Those who can't remember the past are condemmed to repeat it".- George Santayana.

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              • #8
                The remaining amount left in our m.m. savings account is a little over 9 months of monthly expenses. We also have a regular savings account labeled EF that contains an additional month of expenses. So I guess the two accounts combine and the cash in our savings jar, we would have just about a year of monthly expenses available after the money is removed for the car loans...

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                • #9
                  Originally posted by jenn_1022 View Post
                  The remaining amount left in our m.m. savings account is a little over 9 months of monthly expenses. We also have a regular savings account labeled EF that contains an additional month of expenses. So I guess the two accounts combine and the cash in our savings jar, we would have just about a year of monthly expenses available after the money is removed for the car loans...

                  Do it!

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                  • #10
                    Originally posted by jenn_1022 View Post
                    The remaining amount left in our m.m. savings account is a little over 9 months of monthly expenses. We also have a regular savings account labeled EF that contains an additional month of expenses. So I guess the two accounts combine and the cash in our savings jar, we would have just about a year of monthly expenses available after the money is removed for the car loans...
                    Jenn that means that you a lot to cover your emergencies if anything happens in the future. looking at your situation I would totally agree that you should pay off the spectra and save about $295 per month on it.

                    All the best.

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