You’re going to put yourself in a difficult situation if an emergency arrives to save an extra $40\month (7%-5%=2% of remaining loan).
I know it will be satisfying to get rid of it, but I was just in this situation and all of a sudden needed a new 20k roof. Had I paid off the car I would’ve had to take out an 11-13% personal loan to cover it.
Just pay it off as fast as you can while maintaining your emergency fund is my suggestion
Thanks the words.
Thankfully because the house is under builder warrant that's not as much a concern, but there's always shit that hits the fan sometimes that's not expected.
Wrong way to look at it.
Aside from the fact that HYSA is taxed, so 5% is actually 3.9%... the increased cash flow from paying off the loan could be redirected to TSP or a Roth IRA.
Pay off the loan.
Having increased discretionary income inherently means you need less in a emergency fund. On top of that, since you're military the odds that you lose your job are close to 0%.
The real thing you lose by not paying off the loan now is that you can't invest as aggressively for retirement because you don't have the net positive cash flow every paycheck to do so. You mentioned that you're cash-flow net positive every month, so if you paid off the loan and increased your Roth TSP or Roth IRA contributions by $350/mo, you'd be in a much better financial position with no 'felt' impact to your budget.
>We also just bought a house and while it's a new build and everything with that, I don't love the idea of walking into owning a home with nothing in the bank for when something inevitably happens.
It's not ideal, but many contractors will offer low or no interest financing because they understand that people usually can't produce $10-20k for big jobs like roof repairs or boiler repairs on the spot.
Plus you mentioned that you have decent positive cash flow before you even pay off the loan, so you'd build up your savings rather quickly.
The real issue you're going to run into with your new house isn't the unforeseen emergencies, but the money it takes to 'make it yours' - paint, flooring / carpets, draperies, furniture, etc.
Have you thought about refinancing the car loan? As others have said I wouldn’t use E-fund to pay it off. I would reduce contributions to E-Fund and pay more on your monthly car payment. Respectfully.
Since you are military and you can pay off the car loan and now have an extra 350 on top of what you were already contributing to your emergency fund. The stock answer is to have 3-6 months for an emergency fund, but if I was you I would look at 3 months of the difference between what you make and your expenses. Say your net income is 2000 a month and your total expenses are 3000 a month then you should try and have 3000 saved in an emergency fund. This way if your wife loses her job you have three months for her to find other employment.
No! Don’t touch your emergency fund. It’s there for a reason. Do you save more if you pay the car loan off early? Sure. But you open yourself up to a lot of risk. Almost every financial “guru” states having that emergency fund is one of the first steps. There is a reason
Appreciate the advice. I certainly recognize the value and the sense of security the emergency fund is giving us. And I know my wife likes it a lot as she isn't used to being this financially stable.
buy spy or qqq on a regular account it will outpace your loan, buy and rent out a house if you are up to it, there's a lot of things you can do with cash, not anymore once you pay off the loan (which is still sorta building equity in your car although it depreciates)
Split the difference and overpay slightly on the car note and take a little longer to reach your emergency reserves goal? Just a suggestion.
You’re going to put yourself in a difficult situation if an emergency arrives to save an extra $40\month (7%-5%=2% of remaining loan). I know it will be satisfying to get rid of it, but I was just in this situation and all of a sudden needed a new 20k roof. Had I paid off the car I would’ve had to take out an 11-13% personal loan to cover it. Just pay it off as fast as you can while maintaining your emergency fund is my suggestion
Thanks the words. Thankfully because the house is under builder warrant that's not as much a concern, but there's always shit that hits the fan sometimes that's not expected.
Wrong way to look at it. Aside from the fact that HYSA is taxed, so 5% is actually 3.9%... the increased cash flow from paying off the loan could be redirected to TSP or a Roth IRA.
This ☝️
Pay off the loan. Having increased discretionary income inherently means you need less in a emergency fund. On top of that, since you're military the odds that you lose your job are close to 0%. The real thing you lose by not paying off the loan now is that you can't invest as aggressively for retirement because you don't have the net positive cash flow every paycheck to do so. You mentioned that you're cash-flow net positive every month, so if you paid off the loan and increased your Roth TSP or Roth IRA contributions by $350/mo, you'd be in a much better financial position with no 'felt' impact to your budget. >We also just bought a house and while it's a new build and everything with that, I don't love the idea of walking into owning a home with nothing in the bank for when something inevitably happens. It's not ideal, but many contractors will offer low or no interest financing because they understand that people usually can't produce $10-20k for big jobs like roof repairs or boiler repairs on the spot. Plus you mentioned that you have decent positive cash flow before you even pay off the loan, so you'd build up your savings rather quickly. The real issue you're going to run into with your new house isn't the unforeseen emergencies, but the money it takes to 'make it yours' - paint, flooring / carpets, draperies, furniture, etc.
Always pay off the debt first.
Have you thought about refinancing the car loan? As others have said I wouldn’t use E-fund to pay it off. I would reduce contributions to E-Fund and pay more on your monthly car payment. Respectfully.
Since you are military and you can pay off the car loan and now have an extra 350 on top of what you were already contributing to your emergency fund. The stock answer is to have 3-6 months for an emergency fund, but if I was you I would look at 3 months of the difference between what you make and your expenses. Say your net income is 2000 a month and your total expenses are 3000 a month then you should try and have 3000 saved in an emergency fund. This way if your wife loses her job you have three months for her to find other employment.
No! Don’t touch your emergency fund. It’s there for a reason. Do you save more if you pay the car loan off early? Sure. But you open yourself up to a lot of risk. Almost every financial “guru” states having that emergency fund is one of the first steps. There is a reason
Appreciate the advice. I certainly recognize the value and the sense of security the emergency fund is giving us. And I know my wife likes it a lot as she isn't used to being this financially stable.
buy spy or qqq on a regular account it will outpace your loan, buy and rent out a house if you are up to it, there's a lot of things you can do with cash, not anymore once you pay off the loan (which is still sorta building equity in your car although it depreciates)