Monday, May 19, 2014

To Pay or Not?

I don't often weigh in and ask for readers' opinions because I generally just make up my mind and do it. I'm not sure what I want to do in this situation. I'm debating paying off my car which has a balance of $2600 at 0%.

Here is where the money sits:
Regular savings $5300
Car savings $3400
Unrequested daycare flex balance $2100

Should I just pay it off and be done? Or should I wait until we are in a better cash position? What would you do?

14 comments:

  1. Tough one. I think if I had enough money to pay it off completely (like in your case) I would do it. Then the money you were spending on the loan each month can go towards savings.

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  2. If it's at 0% interest, no.

    Don't pay it off until you have to actually pay interest on the loan/balance.

    You make more money with your cash sitting in savings and earning interest.

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  3. I would probably just pay it off since you are now at the point that baby is here and everything is back to normal as far as work, etc.

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  4. Is the car going to change from that 0%? If not, I'd say just keep it for now... maybe increase how much you pay each month, or say, divide it into 3-6 months (depending how much your current payment is), and wait it out... you never know how life can hit you.

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  5. If your vehicles are newer and you don't think anything major will need fixing in the next 6 months then use some of that to pay it off and just start dumping any excess(due to no more car payment)back into that fund.

    Of you could wait since it's 0% interest.

    See? Wasn't that helpful?! lolz

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  6. It is 0% for the life of the loan but I'm sick of having this debt. Its the only debt I have besides the mortgage.

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  7. I think if you're that sick of it, the psychological boost of being rid of it could well outweigh the interest you might be earning on that amount of money through savings. I've been spending lots of time reading Mr. Money Mustache recently, which leads me to say, do the sums. How much interest will you earn on that 2,600 if you don't pay it off. If you really want to go the whole hog you'll need to do the complicated sums part of it to take account of any compounding effect of the interest earned. Then you also need to make sure that you're deducting the amount of each payment from your calculations, i.e. today you have 2,600 in savings but after the next car payment is made, how much would it be. So you calculate interest on 2,600 and add that, then deduct whatever your car payment is, calculate interest and add etc., etc., etc. At the end, add in an amount for your time spent figuring all that out (unless you're an Excel whizz, in which case it might only take you five minutes. For me, my head is already hurting just thinking about someone else having to do this.)
    Whatever number you come up with then needs to be weighed up against the psychological boost and, if applicable, improvement in credit score. Personally, I'm emotional enough when it comes to financial decisions that I probably wouldn't bother with any of the above, I'd just pay the damn thing off and then make sure I built the savings back up as quickly as possible. The 800 you'd still have left in car savings is already a good start, dontcha think?

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  8. I would wait and keep the balance for now :) The financial cost of debt at 0% interest rate is nothing. One could theoretically put $2600 today into a very safe, fixed income investment like a CD or iBond that will mature at the same time as the car loan is due, and benefit from the interest rate arbitrage.

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  9. I've paid off debt with savings too many times and it hurts each time to start over again. Since the car loan is at 0% I would leave it. You can use any extra money laying around to kill it faster or boost the savings even more.

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  10. $2600 isn't really that much money, and this thing has been hanging over you for a long time. If your car savings is at $3400, I would pay off the car using that. I don't really see you taking on an additional auto payment while you still have to make the payment on your car, so essentially that's what you would do if the need suddenly arose for another vehicle, right? I get it that the loan is at 0%, and that paying off your car would give you less liquid cash, but honestly, you haven't "saved" $3400 towards another car if you still owe $2600 towards this one. Just kick it in the nuts already!

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  11. This is a wonderful problem to have. Normally, I have no money and a bill.
    I think that I would hang on to the cash. Having a savings helps me sleep at night and it seems to be way harder to save it than spend it. I guess I would see how long it would take to save that much money back up compared to how long it will take pay off the car. Then go with the shortest amount of time.

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  12. I would just pay it off. It might not be rational but I hate debt too :)

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  13. I hate debt. Even $5.00. lol! I'd pay it off personally just to not "owe"...

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  14. As your debt isn't costing you anything my efforts would be put towards building savings.

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