I'm sure similar questions has been answered so apologies if this post is redundant. I'm curious how I should proceed with my car payment.

Recently started a new job that pays well with benefits, and wondering if I should pay off the rest of my 2016 Mazda because car payments suck. I have $7,700 remaining on my car with a 3.9% interest rate. I pay $254 a month on the car.

I currently make around $3300 a month after taxes. My standard of living is fairly low (I'm cheap af) and all my expenses come out to roughly $1100 (rent, insurance, groceries, etc.)

I currently have $18,000 saved up. No other debt besides my car and my student loans (hoping to have them wiped out pending the forgiveness lawsuits). Should I just pay off the remaining sum on my car or begin investing my money elsewhere? I'm currently researching 401ks/IRA's outside of my employer to get a jumpstart on that side of things.

Thanks!

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downtownpenthaus t1_iydhbad wrote on November 30, 2022 at 4:19 PM

Set payments up on autopay so you don't "feel" them each month.

Only research you really need to do is find out if your employer matches on the 401k. If they don't, open a Roth IRA. Plenty of guidance out there on how to find out what investment is best for you.

Liquidretro t1_iydivta wrote on November 30, 2022 at 4:30 PM

401k's are employer sponsored plans, so you can't do one on your own easily. You can and should have an IRA.

Are you on track for your age for retirement? One years income by the age of 30, 3X by age 40?

TheMightyCholo OP t1_iydknrd wrote on November 30, 2022 at 4:42 PM

Gotcha. As of right now, I’m a bit below one years income by 30

Liquidretro t1_iydvt30 wrote on November 30, 2022 at 5:53 PM

I would focus on putting that extra money into caching up for retirement then. 4% is kind of middle to low interest.

BinghamL t1_iydobu4 wrote on November 30, 2022 at 5:05 PM

I know people here generally only look at the interest rate vs investment gains, in which case it's better math to invest. It ignores a lot of nuance though.

Cars are the most expensive thing most people buy that goes down in value. You can build all these schemes up to soften the blow that you're paying more than you want/should on a car (loans, auto pay, "I'm investing", longer terms, etc).

In my opinion, pay off the car. If it hurts to do so then get a cheaper one, sell this one, and invest the difference. This will keep your vehicle expenses much more in line with your reality. A lot of people say they're going to invest instead and then don't. Even if they do, they're often carrying a bigger debt around than need be via their car loan.

FWIW I'm not anti debt. If it's on a cash flowing asset or your housing (within reason) then I'm all for it. But debt on a consumption item and the mentality that justifies it are just a head wind you'll be pushing against for years.

Kind_Tangerine2190 t1_iydpf2t wrote on November 30, 2022 at 5:12 PM

Personally, I don't know of any HYSA that is getting 3.9% interest or better. If it was me, I would just pay off the loan and be done with it. Then each month put that car payment back into your savings account to build it back up to the $18k. I went into hyperdrive back in 2020 paying of my remaining $16k of student loans that were only at 1.75% interest. Logically, it made more sense to invest the money since my interest rate was only 1.75%, but I really wanted them gone since I had been paying on them for years. The day I made the final payment and was able to print out the zero-balance statement I was overjoyed. I can't tell you how good you feel to have the debt gone. It has been almost 18 months since I have paid it off and I still get giddy, knowing I can say I paid off my student loans (I originally owed $48k).

But I also paid off my car loan 2 1/2 years early because I hate that kind of debt, so I am a type of person that will advise to pay it off. Currently, I have zero debt outside my mortgage and make plenty to invest these days. Sounds like you are doing the right thing living below your means. You can save that $7700 back up quickly with how you live.

bassjam1 t1_iydwadg wrote on November 30, 2022 at 5:56 PM

Best option is to open an IRA/Roth IRA and dump $6k in it for the year vs paying off the car. Especially since stocks are low and at a discount now.

I'm not a fan of paying off loans early with interest rates below 4%, but if you're already maxing out a 401k and IRA, then you have a choice to either invest outside of a retirement account or pay off the car loan early.