Yo, back with a new video mailbag question – check it out!
First I love your blog and your information! I’m really torn if I should pay off my car early. I signed a 60 month lease in 2012 with a 4.4% interest rate. I pay $250, which is more than the $200 required. It isn’t really tight for me, just annoying. I have a monthly budget that includes putting $250 into savings every month, and 15% of my salary into my 403(b). I HATE keeping a car payment, I have $2,750 left on it. I have about $10,000 in savings. I think at this point it would only saving me about $250 in interest to pay it off early. Is that worth it to take such a big hit from my savings account?
Other financial facts: I bought a car, a house, and started grad school(because yay for doing everything at once!), but the only loans I have are my house and car. I also pay extra on my house payment so I am paying equal interest and principal. I did not have much equity in the house when I bought it, so I am trying to build that up. Even though I only plan on having that house for less than 10 years (with potential to rent and keep it longer).
Any advice would be great! I try really hard to make good decisions with my money, including a strict budget, but sometimes it’s still hard to know if I’m doing it right!
Hey Kelly, I don’t like using assets to pay off debt. Don’t take the $2,750 from your $10,000 of savings to pay off the car. You should use your income to pay off the car as soon as possible though. Let’s talk about your savings account for a minute. You have $10,000 saved and are putting away a further $250 a month. I want you to have 3 months of expenses saved, and I’m assuming, $10,000 covers you on that. It’s time to stop saving, and start focusing on paying off your debt. If you switch the $250 from monthly savings to your car payment, you can make a $500 a month car payment. Do this. This aggressive monthly payment will have your car paid off in just a few months. Then you’ll have $500 a month to put toward other financial goals.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.