(Closed) Savings, car loan or student loan?

posted 8 years ago in Money
Post # 17
Member
42 posts
Newbee
  • Wedding: September 2012

@autumnlynnhill:  

I am a Dave Ramsey girl, but I also work in the banking/finance industry.  Interest on your student loans are tax deductible, but you have enough remaining after you paid off the smaller loan to still reap those rewards during tax season.

To give myself a nice shot of satisfaction in the arm, I would pay off my $2K student loan and sing “Another One Bites the Dust.”  Smile  Take care of your small straggling loans first to keep your personal momentum going, then hit your car loan with everything ya got!

Post # 18
Member
4474 posts
Honey bee
  • Wedding: November 2012

Put it in savings & the car loan.  You always want to pay your highest rate loan off first.  The student loan interest rate’s so low you’re better off just leaving that one be.

Post # 19
Member
6114 posts
Bee Keeper
  • Wedding: August 2012

0.90% car loan ($20k)
0.39% student loan ($30k)

 

I’d throw it at the car loan since it’s higher.  Did you really get a fixed 0.39% for your student loans?  That is out of this world!  Not that it’s an incentive to keep paying but you can at least get a deduction (or adjustment?) for your student loan interest paid on your taxes, but not for your car.

Post # 20
Member
2295 posts
Buzzing bee
  • Wedding: April 2013

Another Dave Ramsey girl here – I’ve been following his teachings for 8+ years and can’t tell you what wonders they have worked in my life.

The baby steps are:

Step 1: $1000 in the bank as a “baby” emergency fund

Step 2: Pay off all debt in order of smallest to largest

Step 3: 3 – 6 months expenses as a fully-funded emergency fund (EMERGENCIES ONLY! Not new furniture, not a vacation, not anything except emergencies)

Step 4: 15% of your income to retirement savings, not including what any employers contribute

Step 5: College savings for kids, if applicable

Step 6: Pay off the house

Step 7: Build Wealth & Give

 

So I have to recommend those steps, meaning dropping your savings to $1k (but only if you’re really going to get intense about paying off debt, you don’t want to have that low of savings for long), paying off the smallest loan, then throwing the rest at the next loan and just going crazy paying it all off.

We have three paid for cars (two of them being luxury/sports cars), a BIG emergency fund as well as a car-replacement fund, plenty of money to pay for our wedding, absolutely no debt, and tons of financial peace. Our big goal after the wedding is to save cash to pay for our first home – and we are on track to do it in 3 – 4 years (and wouldn’t buy before then anyway because of some moves we have planned).

There are some misconceptions about Dave’s plan, and some legitimate criticisms. Yes, going by interest rate may save you a bit of money, but studies have proven that those who go smallest to largest (snowball) are more likely to pay it all off.

If you’re at all interested in it, I’d recommend checking out his website. It was a life-changer for me. Fiance and I took Financial Peace University together this past summer and it has set us up to be on the same page about finances and successful in that area like you wouldn’t believe.

Post # 21
Member
10361 posts
Sugar Beekeeper
  • Wedding: September 2010

Well, it won’t be $2000 after taxes, so keep that in mind.

I’m a big fan of a hefty emergency savings account. You could always split it and put half in savings, half towards the car loan (higher APR)

Post # 22
Member
3460 posts
Sugar bee
  • Wedding: May 2012

I’d open an ING account at 0.8% interest, calculate six month of expense and if you can do it, put 6-12 months of expenses into this account.  (Six months is good, but after a 2 year unemployment stint I lean towards a more conservative approach.) 

After that I would pay down the highest amount first (the car loan).  The student interest I would leave alone frankly, because it’s so low plus at least this year you can deduct student loan interest.  (In 2013 you can only deduct for loans of less than 5 years I believe.)  If you are planning on buying a house in the next few years, there is no reason to pay it off and then take out money at higher rates, *especially* when you can be actually making money with an ING savings account.  My parents made 2% off their first car loan this way.

Post # 23
Member
1070 posts
Bumble bee
  • Wedding: July 2013

For me this would be an obvious answer… pay of the car loan because it has the highest interest rate

Post # 24
Member
657 posts
Busy bee
  • Wedding: December 2012

Considering you already have a bit of savings, I would put it toward the student loan or split it between the car and student loan.

Post # 25
Member
3470 posts
Sugar bee
  • Wedding: July 2012 - The Gables Inn, Santa Rosa, CA

I would look and see which will save you more in interest– paying off the student loan, or paying down the car.  Whichever saves you more in the end is the better choice.  No point in paying more than you have to.  

Post # 26
Member
15 posts
Newbee
  • Wedding: January 2013

SAVE IT! The interest rates are so low, its not worth it to pay them off with your savings being that small. If you do use it tword the loan, don’t put it tword a 30K loan…you will miss that 2K if your car breaks down next week!

Always keep the cash handy…

Post # 29
Member
5667 posts
Bee Keeper

Usually I would say pay the car loan down, but the interest rate is so low and your savings is not even close to what you’d need if you were to lose your job. Put it all in savings. You need a minimum of 6 months of expenses in an emergency fund (not salary, but what you’d need to eat, pay your bills and still have a small amount of fun money). Then you can worry about paying down the loans.

Post # 30
Hostess
7547 posts
Bumble Beekeeper
  • Wedding: January 2013

I would put it towards your car because that interest rate is the highest.

$2000 x .09 = $180

If you save the money, it won’t be working for you. 

Post # 31
Member
219 posts
Helper bee

I would only add it to your savings if you have a higher-than-normal risk for an “emergency” in the near future- i.e. your job is unstable, you’re having health problems, etc.  Otherwise, I would put it toward the debt-mathematically you should put it toward the higher interest one, but from a behavioral-finance perspective, you might find it more motivating to do as Dave Ramsey prescribes and pay off the smallest loan first, and that taste of success might spur you to pay off the rest more quickly.  

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