Pay off car or save?

[Joi]

There's lots of theories out there about paying off debt before saving, but I think it's best to do both, even if you put a little aside each month. It sets up a habit and you are slowly building a nest egg with interest. If you just pay off your car, at the end of the term you have nothing to show for it but a depreciated car and you have to start your savings from scratch.

I totally agree. I have less than $4K left on my car payment, which I could pay off with money from my savings account. But like you said, if I do that, all I will be left with is a depreciated car and $4k less in savings. So I agree that saving while paying overtime is a good method.

[bjl584]

There's lots of theories out there about paying off debt before saving, but I think it's best to do both, even if you put a little aside each month. It sets up a habit and you are slowly building a nest egg with interest. If you just pay off your car, at the end of the term you have nothing to show for it but a depreciated car and you have to start your savings from scratch.

OP's car will depreciate no matter how they pay it off. As a long term strategy I would advise to pay off the car and then start building savings. Trying to do both will cost in the long run unless OP's bank is paying more than the 6.99% interest that the car loan is for, and that is highly unlikely.

[jpg7n16]

OP's car will depreciate no matter how they pay it off. As a long term strategy I would advise to pay off the car and then start building savings. Trying to do both will cost in the long run unless OP's bank is paying more than the 6.99% interest that the car loan is for, and that is highly unlikely.

Totally agreed.

Assumptions: (12 months remaining on loan, 1.1% APY offered on savings)

If you pay monthly, in 1 year - you'll have $0 debt, car will be valued at $x, you will have paid about $115 in interest, and made $33 on the $3k in the bank.

If you pay off the car today and saved the car payment each month, in 1 year - you'll have $0 debt, car will be valued at same $x, you will have paid $0 in interest, and will have made $16 interest.


Item by item after 1 year:

Debt remaining: $0 vs $0 - wash
Value of car in 1 year: $x vs $x - wash
Interest paid: $115 vs $0 - adv pay off car +$115
Interest earned: $33 vs $16 - adv debt +17
Pay off car wins by $98

$100 may not seem like much, but if you were walking down the street and found $100 just lying there - you'd be super happy. This isn't any different. (On $3k, $100 is 3%)


Your EF after paying the $3k is still good enough, so there is no real downside to this.

[Ashleywatson]

I am not sure how much your medical bills are, but use the other 3k to pay off as much as you can. The more debt you clear from your books the more income you open up. Good luck!