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Did I screw up by paying impulsivly my car off?

Hello all. I was in a tough spot credit score wise and I got hit with a 10% apr when I bought my car last year. I paid it for a year and barely made a dent in the principle obviously.

As of last week I owed 10k on the loan which I had 51 more payments. After buckling down tremendously I managed to get my savings account to 16k. I said screw and paid the 10k leaving me with 6k in my savings. I have an efund and am able to pay all bills while still saving. Did I screw up and leave myself with a dangerous savings fund, or did I do the right thing?

Edit - Should I have considered refinance?

171 comments
87% Upvoted
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level 1

Your car is paid off so that's a good thing. Just continue "making payments" each month. By that I mean take the amount that you were paying and put it into your savings each month.

level 2
317 points · 8 months ago

This is the best option. Instead of owing money to your car, you just owe money to yourself!

level 3

Bingo

level 4

That’s a bingo

level 5

Just watched this today. So good

level 3
29 points · 8 months ago

Well I'm a greedy Lil ho so idk if I want that indebtedness lol

level 4

Is this PF dirty talk?

level 5

Oooh, talk savings to me lol

level 6

I put a nickel in your piggy bank. Show 401k?

level 6

That's right baby, put 6% into my emergency fund... That's the spot.

level 7

Wait slow down, my minimum distribution is coming up!

level 4
16 points · 8 months ago

Damn girl .. you make me want to compound that interest...

level 3

Yes, save the money and without what amounts to a -10% interest rate.

level 2

Or split the freed up money half and half betwern your savings and paying off another debt faster.

level 2

Think of it as your car payment for your future car, that you will be able to buy in cash and never pay interest on a car again. Way to go OP!

level 1
942 points · 8 months ago

No,you’re fine

level 2
Comment deleted8 months ago(13 children)
level 3
211 points · 8 months ago

yeah op I’ve got some spare debt I could toss your way if you’re feeling uncomfortably free at the moment.

level 4

No take mine! It is much bigger and more depressing than theirs!

level 5
40 points · 8 months ago

That's what she said.

level 6

What lol.

how?

Last night my coworker came out of the bathroom, so I asked him "Did everything come out okay?" On weekends I work a few shifts at a restaurant, so this is a common phrase to ask someone when their food comes out. So its a a fun spin for using the restroom.

He responded, "Yeah I could've used a hand. My doctor told me not to be lifting anything heavy."

I

Lost

It.

This isn't really related, but I just wanted to share this fun story. :)

level 5
Comment deleted8 months ago(0 children)
level 4

Debt for sale! Debt for sale! Get your debt here!

level 3

With some smart savings it's not hard to do. If you don't have the down payment, overpay your bills and get the interest amount down.

It's been two years and I've taken off $100/month by adding more money to my mortgage payments.

level 3

This, about 5 years ago I paid off my car and all my debts and save up about 6 months emergency fund. After that I was way less stressed and when ever something unexpected happened I was ready for it. Made a huge difference in my life. Sad part is I decided to change careers and now I’m back in University but I’m paying that thing off ASAP!

level 4

You are so right! I lost my job 2 years ago but was given a decent severance package. I paid off every debt I had and I have never been happier. The stress of debt was unhealthy.

level 3

Found Dave Ramsey

level 3

Yes, having no debt is safety.

level 3

Thank you for this. A much needed laugh.

level 3

Besides 10%. That's easily one of the best returns around

level 2
22 points · 8 months ago

Agree. Paying off that debt is equivalent to investing your money and getting a guaranteed 10% return. (And you couldn't find an investment with that kind of certainty anywhere else). As long as you don't risk falling in the red (and esp if you have a line of credit for some "worst case scenario") I would say this was a rational investment

level 1
246 points · 8 months ago

From the information you gave, you did the right thing. Now you have extra money to replenish your efund.

level 1

At 10%, you did the right thing.

A refinance may have been ok too. But your car is paid off now and you saved yourself from paying more in interest than that 10k would have earned in a savings account.

I see only good from what you did. Congrats!!

level 2

Great point. Paying it was a way better idea than refinancing. Not only that. Just the feeling of it being paid off is a wonderful feeling. Great job!!

level 2
2 points · 8 months ago

What if the interest rate was 3.1. I’m in a very similar position savings and debt wise.

level 3

3.1% is pretty low. Most people would be comfortable making normal payments and throwing the excess into the market. That being said, having no debt is nice and totally understandable if you wanted pay it all off early as long as it didn't jeopardize your future/stability.

level 4

Thanks for your reply! It would just cut my emergency savings down to three months so I’m contemplating.

level 5

Just make sure there’s no penalty for early payment. Also run the numbers: paying off early vs. holding the money in a high yield savings account. If the difference between the two is like... $50 then maybe that’s the price to pay for flexibility.

level 3
2 points · 8 months ago

Do you have the funds to easily pay off the loan? If so, what are you doing with that money now?

If that money is sitting in a checking or savings account, you may as well pay off the car. The money is earning you nothing and the loan is costing you 3%.

If you have the money in an investment vehicle, you may want to consider leaving it there. Just remember to calculate the 3% interest against your investment return. Plus, consider the risk level of your investment vehicle and your tolerance for risk. In the stock market, that money that could pay off your vehicle could be gone tomorrow. How would you feel if that happened?

On the other hand, the market could go on a further run and pay for that car.

Assess the risk and your tolerance.

level 1
43 points · 8 months ago

Dude, 6k in savings is vastly more than a vast majority of Americans. You're good

level 1
165 points · 8 months ago

Six year car loan at 10%? You did the right thing and I hope you learned a lesson about car buying and personal finance.

level 2
51 points · 8 months ago

While 10% is not acceptable, I prefer six year loans. I pay them off in 2-3 years but have an option of cutting back to a minimum payment in an emergency.

level 3

Yup, me too. The rate difference is not material and I prefer the longer loans so I can decide what to pay in a given month. My rates are both under 3% APR.

level 4

Did the math on 4-year and 5-year $12k loans. At low rates, the difference in interest paid over the life of the loan was like $300 or something. So I'll prob get the 5-year for that little bit of extra flexibility.

level 3
-6 points · 8 months ago(1 child)
level 4

Ill keep putting money in my 401k, which has averaged multiple times higher return than the interest on my car loan, rather than using some arbitrary guideline that has nothing to do with smart investing and everything to do with old wives tales.

Debt is not a boogeyman, bad word, terrible thing. Inflation exists. 401k/IRAs/Stocks/Mutual funds/Bonds exist.

If you have excellent credit, its a terrible idea not to take advantage of it.

level 3
Comment deleted8 months ago(3 children)
level 4

I prefer to borrow money at one interest rate and then take the cash I had and invest elsewhere at an expected return above the loan rate. That way I have more flexibility and on expectation I have more money at the end of the period.

level 5
-6 points · 8 months ago(0 children)
level 4
-4 points · 8 months ago

Same here. It is hilarious to watch these people rationalize their debt.

level 2

Is there anything else people take into serious consideration when it comes to Financing?

For instance, he had a 10% APR. Pay this back before a student loan at 6%.

Now that would also mean, I'm better off paying off the student loans at minimums and invest in the S&P500 at 7% over 10 years.

Currently trying to decide between a 100k payment on the house or 100k investment on this Trump bull run market.

level 3

If paying that 100k doesn't pay off your house I would personally not go that route. Prepaying doesn't change your payment amount. So if you prepay that much, then lose your job, you would still need to make payments and could be foreclosed on.

level 3

I wouldn't put everything in a bucket, maybe 50k each way at most.

level 3
2 points · 8 months ago · edited 8 months ago

I have a car loan and mortgage and I don't pay extra on either. Doing that gives me less liquidity and lower returns than buying even bond funds, so why bother? I wouldn't do this with revolving debt (high rates) or student loans (because I probably don't have any fallback cash), but for loans against assets? Hell if they'll basically let me borrow at inflation rates I'll take what I can get.

You could throw random darts at a board and hit money in equities right now (S&P returned 20% in 2017) and while the party won't last forever the assets remain liquid and you can pull them out (for rebalancing, emergencies, etc) which is something you lose if you put the money into an existing home loan. Not to mention you lose the leverage you had on that investment without reducing your risk at all, if you home drops in value it doesn't matter if you had more of the loan paid you still lost that value.

level 3
[deleted]
2 points · 8 months ago

House

level 2
-8 points · 8 months ago(4 children)
level 3

Could be used. Can't get reasonable rates on a used car.

level 4

That is not true. We bought a used 2013 vehicle in 2015. It had 30k miles on it. Got under 2% interest rate.

level 5

Wow, I'm surprised. Still, in general, interest rates on used cars are much worse than new ones.

level 6
2 points · 8 months ago · edited 8 months ago

I’m not familiar with the going rates empirically; but find your assertion surprising given that the depreciation rate of a used car will be much smaller than that of a new car and the loan is backed by the asset. If I borrow $10k to buy a used car at fair market value today and default next month it’s still worth pretty close to $10k. On the margin that extra month of use didn’t depreciate the value that much. So lender can recover most of their principal. If I borrow to buy a new car, the second it drives off the lot it depreciates massively. So in case of default much less principal can be recovered by the lender.

Having said that the distribution of credit scores of people financing used cars may be lower than that for new cars. So you could be right for that reason on a population level. But for a given individual with a fixed credit score, I’d expect rates for used cars to be lower.

Edit: some googling does reveal you are right. Couple reasons. The lower rate on new cars is partially an incentive used to lure consumers into buying new. Secondly the true market value of a used car is more difficult to determine than a new car which means lender is taking some extra risk there (there could be unreported mechanical issues etc). Interesting. I stand corrected. Difference doesn’t seem to be massive though.

level 1
32 points · 8 months ago

Did you screw up absolutely not as it is not worth saving at 1% when you have a 10% bill over your head. You can use what you were applying to the car payment each month to rebuilding your EF and save that 10% for yourself. Plus you have to peace of mind of that car payment not hanging over you.

Just for future reference you may have had a better option. Since you were paying 10% interest either your credit score or in particular your auto FICO score was not that great. You could have improved it by instead of making a single bulk payment to pay off the loan you split that into multiple separate full payments. If you had made a separate full payment everyday until the balance was under $100 dollars you would have advanced the due date 1 month every time you did that. Once the balance was under a $100 dollars you could have ridden those advanced due dates out till the loan reached 1 year.

Your interest would have been only been less than 83 cents a month and it would have improved your score. However cute what I mentioned may be, paying the loan off was the right decision.

level 2

I used to work operations in a collections area for a bank. I'd be the one applying payments to loans that were repossessed and sold at auction as well as from total loss insurance settlements. In a few cases we had loans that were advanced several years due to incomplete payoffs (Due to miscalculating interest on the daily rate after getting a payoff quote for example). They would come to our attention after the accounts would show past due and come up on a managers' report for low principal balance / early delinquency.

In almost every case, we wrote off the remainder of the loan without impact to the customer if I could show that the remaining balance due was close enough to what the payoff would have been within two weeks of the date of the big payment (Based on the daily interest accrual back then).

As I recall there was only one case where they required the client to pay yes more money and even that was negotiated fired to the principal for at the time of the big payment.

level 3

Thanks for point out that I missed something. After that one year of riding the due dates and before those advanced due dates run out make sure you pay the loan off. If you fail too all the god you have done will be wiped out and even do more damage.

/u/GeenMachine your place was kinder than the bank I was at. Each LRC had a dollar amount they could waive, this was not just a policy but a hard and fast rule built into the system. Initially they would try and get people to pay without dinging their credit but if no luck it went to the wolves and they were relentless and would chase until SOL.

level 2

I understand everything you said except for 'advanced your due date'. Does that mean to extend the due date?

level 3

No "advance your due date" is when you make a full amount extra payment or put enough extra in several payments to advance your next due date one additional month. The idea is to do enough of these to the point where you can go a while without making a payment. You then can avoid paying interest, or limit the interest, while getting the credit score improvements of having an active car loan.

I hope I answered your question, though it seems muddy what I wrote. Need more coffee

level 2

Huh. I didn't realize my car loan worked in this way. I have only dealt with a couple credit cards,so I just thought the monthly payment had a minimum each month, regardless of what I paid last month.

I've been paying a but extra on my car loan each month, and the company keeps sending letters saying my minimum due that month was a lower amount by whatever I've paid over. I thought this was just the loan company trying to get me confused and only pay that amount so I'd fall back into the debt hole. I was a bit conservative about how much I spend, because my income to bills ratio is kinda high and I like to have a bit of extra money sitting around in case I miss a bill or have something unexpected come up. I was worried about being able to make the monthly minimum car payment,but I see now that this would give me some flexibility of I needed to not pay as much on the car payment in a particular month.

level 3
2 points · 8 months ago

Yes term loans do work differently and you learn as you go and add each type to your loan history.

I thought this was just the loan company trying to get me confused and only pay that amount so I'd fall back into the debt hole.

They are sorta doing that in that they are hoping you will only pay what is on the statement. With a 10% loan they want to keep that going as long as they can and get as much interest as they can.

level 1

$6000 is still a good emergency fund.

level 1
17 points · 8 months ago

10% APR being saved will be more than the small saving's account percentage. You did a good job. Plus, you don't have to worry about this bill anymore. (This gives a huge mental relief.)

level 1
[deleted]
17 points · 8 months ago

Double digit % debt is always good to pay of as soon as possible. Great job!

level 1

I’ve been on a get out of debt kick the last couple years, and while I know there are plenty of people who believe that good debt exists, I believe you did the right thing.

Your credit score may take a dip, but who cares.

level 2

10% debt is not good debt.

level 3

Definitely agree, I wasn’t talking about OP’s situation specifically but there are some folks who believe the only way to have a good credit score is to pay interest to people.

level 2
Original Poster21 points · 8 months ago

Thanks. I could see continuing payments with a 1% apr maybe but the 10% just made me sick thinking about it. As for the score I really dont see myself needing it anytime soon so I'm definitely ok with that

level 3

Yeah that would make me sick also. There are plenty of ways to keep your score in good standing that don’t cost money. IE using credit cards and paying them off all the time. I pay absolutely nothing in interest, and run all my purchases through my cc’s.

Personally I don’t even view it as debt because I always have the cash reserve on hand to pay it off.

level 1

Generally paying off debt is the best option for most people...

If your trying to maximize your finances, there are times when investing > paying debt...

But when you add in human nature and habits, it doesn't work out like that for most people.

For example cash back credit cards. Ideally you should use one for every purchase ( that doesn't give a cash discount) but for a lot of people the convenience leads them to spend more on things they don't need then they save..

level 1

Most people have no emergency fund. you just paid off your car note and have $6k left in the bank. Chill out.

level 1

You just got a 10% return on investment by paying off your car. If you worked on Wall Street your boss would be very happy with you. By my calculations you also saved yourself over $2200 in interest over the next 51 months. Sure you could have refinanced but you've freed up quite a bit of cash flow for the next four years and you can make new savings goals and achieve them sooner with this monthly payment off your back. Good job.

level 1

As long as your emergency fund is in good shape, what else were you going to use your savings on?

level 1

In my personal version of the world, I like to be debt free because that gives me long-term options. As a technical entrepreneur my income fluctuates tremendously, so I try to do my best to minimize my monthly outgoing cash flow.

So, from that perspective I would definitely pay off a car as quickly as possible. I would not have slipped into my "6 months of financial padding" to do so. I'm unclear if you did that or not.

Some people here would run the numbers. If the assumed yearly increase of an S&P500 fund is 7%, then you did the right thing by paying off the debt because your savings on Interest payments would offset the gains from investing.

Bonus: there is often a sense of relief when you remove a debt from your books. And hopefully the increase in monthly cash flow will allow you to build up your savings account again.

So, I say you did awesome!

level 1

You're gunna save yourself money in the long run, just buckle down and get your savings back up! Best of luck to you

level 1

U also own the car outright so if u ever need money u can sell it as opposed to the hassle of not owning it and trying to sell it

level 1

10% APR is really high. As long as that 6k is 2-4 months or more of living expenses, sounds like a good decision to me! Good job :)

Keep saving!

level 1

Having high interest debt counts as an emergency.

level 1

10% APR, probably underwater on the car.

Refinance was not an option.

Paying it off debt that costs you 10% per year is like investing in something at 10% return guaranteed.

You did well.

level 1

I see posts like this and it always seems like fishing for compliments... oh no, I saved money and paid off my car! Did I mess up?!

level 1

congratulations! this is a huge achievement, well done.

level 1

You do realize there are people out there who have no savings right? 6k in savings has most of America sitting pretty.

Congratulations on paying off the car. That should free up a couple hundred I assume to put back into savings.

level 1

OP, I wish i could do this! My car payment is so stressful.

level 1

Considering that you now have no car payment, your savings rate just increased. Your insurance can also probably go down.

level 1

Barring any major expenses or emergencies coming up, a $6k emergency fund should be fine for now, and now you'll have a lot more spare income each month to put towards savings. So yes, paying off the car was a great decision!

level 1

So you paid off a 10% car loan, correct? Assuming that's correct, then you absolutely did the right thing as you still have a $6k efund (assuming that's your e-fund and not all cash on hand). Work to rebuild the e-fund. Paying off 10% debt is almost always a good call.

level 1

You definitely did the right thing. Now that you don't have a car payment, you can put that amount in savings every month!

level 1

If you really need the cash, join a credit union and look at their car loan rates. Mine (DCU) has a rate of just over 2% now on new, used and refi for cars. I see 10% and want to throw myself out a window!

level 1

I did the same thing a year and half ago, 8k remaining at 7%.

Would do it again in a heartbeat, the <1000$ I've spent on the car in maintenance had been much easier to swallow.

level 1

At 10% you did right paying it off. Pay cash only. Or 0%

level 1

If you are in debt, you are NOT saving. You did the right thing.

level 1

Unless you had a safe place to put that money that would give you a higher after tax yield, you were smart to pay off the debt.

level 1

I think you did the right thing. I am doing something similar. I had a 20k emergency fund and a 19k car loan. I almost emptied my emergency fund and I paid my car loan.

I finally came to the conclusion that I had been lying to myself about how much money I really had and was paying interest for the privilege of doing so. I am now building up my emergency fund again and am debt free except my mortgage. It feels great, and it also feels honest.

level 1
2 points · 8 months ago · edited 8 months ago

Nailed it.

There's good debt and bad debt. My house is a 15-year traditional mortgage at 2.5% - I'm not paying that sucker off a day early no matter how much cash I'm sitting on.

Your 10% car loan was bad debt. You terminated it with extreme prejudice. Good job.

level 1

Related question. If the debt was at 0%, does the psychological benefit of having car paid off outweigh interest made on having that money in savings? Curious to hear others opinions on this.

level 2
2 points · 8 months ago

I’m curious as well!

level 1

Excellent choice. Now rebuild your savings by setting up an automatic monthly deposit to your savings account for the amount you were paying on the loan. You won't "miss" having the money each month and you won't have to readjust your budget when you're ready to buy your next car.

level 1

If more people would impulsively pay off their 10% APR car loans, the populace as a whole would be in a better place :)

level 1

Debt can sometimes be considered an emergency, especially when there's collateral like a car on the line. You've done nothing wrong. If an emergency does happen, you will still have a car and will still have the option to downgrade if it comes to that.

level 1
2 points · 8 months ago

Unless it was a 0% Apr loan, you did well to pay it off. If you were able to save that much before, you'll have an even easier time saving now that you don't have a car payment

level 1

You did good by paying it off. No need to waste money on interest as long as it didn't put you in a bind.

As long as you don't need the money to pay off another debt, you should take what you were paying for the car monthly , and put it right back into savings. Keep the same or better spending /savings habits you has before. You will be surprised how fast you can get to better than 16K built back up if you keep that attitude.

level 1

You are fine. Just take that amount you were paying into the car loan and save it instead now. That should kick your savings/investments up in the next few years.

level 1
2 points · 8 months ago · edited 8 months ago

If you had a 1% interest rate and were saving to buy a house, then sure, I’d say that wasn’t the best move. But you now have $6,000 in savings, and can start throwing hundreds more into savings each month. You’re fine.

level 1
[deleted]
2 points · 8 months ago

Good job! Mathematically that's a great use of your money!

level 1

Think of how fast you can rebuild your fund now that you don't have a car payment.

level 1

If I'm not mistaken, your auto insurance premium should also lower since you now own your car. I would check with your insurance company.

If so, that's extra savings you can bank monthly!

level 1

You made the only decision 10% is criminal congratulations!

level 1

I agree with others this was a good move. You'll be able to make up the dip in your efund with the monthly car payment you used to make.

level 1

Good job. Congrats

level 1

Your 10% apr is much better than my 18% I had on my 1st car purchase. Regretted it at the time.. maybe I still do a little. Had terrible credit at the time like mid 400's or something. One of the greatest feelings finally paying that loan off.. took about 3 years but at the end i had good enough credit to buy a home with 670 score. Buying the home pulled credit down also.

I think you made a wise decision. If you don't have to pay interest, why pay it... that car note plus other available savings will add back up to your savings balance.

level 1

I figure it this way: let's say there was a possibility that you could have refinanced it and found somewhere to invest that would exceed the new interest rate. Even then, it wouldn't have been for more than one or two percent. Not enough to lose sleep over.

It is better that you had the instinct to get rid of the debt. You can't go very wrong with the attitude.

level 1

Just fyi- you could likely refinance the car later if you needed. This way you're saving interest for the time being, so I'd say it was a good move

level 1

congratulations! this is a huge achievement, well done.

level 1

Did you screw up by giving your self a positive net worth? No. No you didn't.

level 1

I would have done the same. But I want to put it out there, paying off loans don't always have a positive effect. That's even if you have the money. I recently cleaned up some credit. Paying off my car loan actually was a negative to my credit score.

level 2
[deleted]
1 point · 8 months ago

I just consolidated off 30k in credit cards and my my score dropped 40 pts

level 1

You only screwed up if you paid a prepayment penalty equal to the interest you would have paid anyway if you paid your loan over time. Did your loan have a prepayment penalty? Not sure if this is even legal on car loan. Beyond that, you fine as long as your not living paycheck to paycheck.

level 1

You did screw up as all the interest in built into the loan, so you aren’t saving anything, and it wouldn’t do any good to refinance either. The only benefit to you is psychologically not having the debt on your shoulders.

level 2

That's exactly why I haven't paid mine off. It's 100 bucks a month and I have over 4 grand left, so I don't really see a point since it wont cost me anymore at the end but I'd rather not lose that chunk of my savings.

level 1

It got the current look in 2016.

level 1

no that is good to do bc of the high interest! and now u have an asset (its depreciating but better than nothing) and $6k is likely to get u thru most emergencies that may pop up. just use the extra wiggle room to replenish your savings

level 1

No you are a genius

level 1

At 10% it was a pretty good deal to take care of it. Keeping big savings is useful but not if it costs you a bunch of money to do it.

Credit gives you the flexibility to maintain less savings because you can borrow emergency expenses, you shouldn't do that just so you can buy a new toy or whatever but you should use that to avoid wasting money on a loan you don't need, especially if the loan rate is 1/2 a credit card APR to begin with.

level 1

Don't second guess it. 10% interest rate is fairly high, you still have decent savings. Just don't blow the new found monthly cashlflow from not having a car payment. Save that to rebuild your savings and for future goals.

level 1
[deleted]
1 point · 8 months ago

6k is a lot lol. It’s not like you left yourself with 10 dollars for a month.

level 1

That isn't a screwup at all. Debt at a high enough interest rate is an emergency all by itself.

level 1

I am about to do the same thing. Not the mathematically best option, but if something happens and your income changes or something, it is one less thing to budget for each month.

level 1

You did just fine. You'll be able to boost your savings again now that you don't have a car payment. Don't worry about it.

level 1

Hey I did the same thing too late 2016:). It's a great decision because now (I'm quoting my coworker) "You can focus on your next investment". I am now able to afford to go back to school without taking out any loans.

level 1

No you did fine. 10% APR is too high! I think you did a good job. You should feel relieved and proud of yourself! You got a $6K cushion!

level 1

My opinion: you're fine and congratulations on paying off debt! Making moves to get back in control

level 1

You did absolutely the right thing. A few years ago I had a car loan at 1% & I ended up paying it off early because I hated having payments. Mathematically it might have been an unwise decision, emotionally it absolutely was the best decision.

level 1

Just make sure you keep 6mo worth of savings available in case of job loss.

level 1

Seems good to me. You still have enough money to survive and are still making an overall net profit per month (even more now that the payment isn’t taking away from your income)

level 1

There is nothing better than the feeling of paying of debt.. Good job..

level 1

No reason to doubt yourself, you should be fine.

level 1

Good move paying off car. Borrowing money to buy personal things is a con job by financial institutions. Stay out of debt if you want financial freedom otherwise you will spend many hard earned $$$$$$$ during your lifetime on interest payments.

level 1

I just did the same exact thing last month! I've got the same financial situation too. Now with the money I save, I started and slowly grow a conservative ETF portfolio (returns ~30% each year) which is much better than a saving's account.

level 1

It's really dependent on your current income and expenses. What is your monthly saving rate? How many months will your current efund last? With the limited info you have given us, I think you are fine. Just keep saving and build the refund back up. It's never a bad idea to pay off high interest debt, as long as you have a cushion.

level 2
Original Poster7 points · 8 months ago

I currently have a 2 month Efund which I hope to have to 3 months soon. During the time I was making payments of 300 a month I was able to also save about 300 a month give or take, depending on the month. So I believe I can save 600 a month for the forseeable future.

It was an impulse move that scared me after because I have never paid out such a large sum at once. But clearing that loan has left me 100% debt free.

level 1

I would of have done the same. That interest kills and u took care of it. Savings can be built up agian. pluz u had sum

level 2

I... I just... This comment makes me feel some type of way, I'll just leave it at that.

level 1

Heck yes you did the right thing, 10% APR on a 6 year loan is nuts and you're much better off without it.

level 1

Congrats, you just saved yourself a (relative) ton in interest over the next 5 years.

level 1

Think about this way...

Now you have $10K less, but every dollar you save is now not being used to pay a 10% for the next 4+ years. Each month put the amount which would have been your car payment into saving (emergency/backup account first, then retirement) and you’ll quickly recoup the $10K... especially as you are now earning interest vs paying interest (even if only 1% it’s akin to earning 11%).

I’m debating doing the same thing for either my wife’s school loan or car. She feels so guilty about the loan, but she’s using it in the career she enjoys and is successful in (nursing), I’m not bothered by it at all.

level 1
[deleted]
1 point · 8 months ago

GREAT JOB! Think of it this way: What if you found a fund that guaranteed you a risk free 10% return on investment? You'd JUMP at it! That's essentially what you did.

level 1

You just increased the interest rate on your savings account from 0.5% or whatever to 9.5%. Seems like a good deal to me.

level 1

What I don’t understand, is that Americans seem enslaved by this whole credit system. A debt is always going to cost more, than simply saving up for something. Why would you have so much money, yet are in often more than one debt? Logically, it seems silly to me.

Op, I believe you did the right thing for sure. Not only does a loan cost money, also psychology wise - clean slate, and such, as has been expressed before.

That said - admittedly - I don’t know enough about the actual situation in America, other than what I’ve seen and experiences on a three week trip, and what I read online, so I base this on my intuition.

level 1

nope know keep the payed forcar and rebuild the saving account

level 1
0 points · 8 months ago

Looks fine - but also now be sure to review your insurance. The bank would have required comprehensive, which is a premium, and not required now. Consider what happens if the car is totaled, could you afford to buy a replacement cash, or another smaller loan- with minimal impact? - Then apply the Insurance payment reduction to rebuild the savings.

level 1

"Screw up" is too strong, but depending on your expenses, yes you ran your emergency fund too low for most people's comfort and it might have been a slightly better plan to wait a little longer to pay off the debt. Knuckle down and replenish it back to 3-6 months expenses ASAP.

3-6 months emergency fund>Paying off debt>investing

But you'll probably be fine.

level 1

What is an 'efund' and why would you ask about "a dangerous savings fund"?

Is an efund some kind of online banking where you have your savings? What does this have to do with a car loan?

Anyways, you might have had a better credit score if you continued to pay or did a refi, but that's not certain because you now have less debt. IDK which gives the better score.

Too late now, the refi shouldn't be a concern, but I think it would have been close to a wash because you're comparing less debt to using credit for a better credit score. I'm guess the less debt would be the winner, plus you'll save a buck on interest.

level 2

Emergency fund. Generally people on this sub say it should be 3-6 months worth of expenses. So if OP has 3 months emergency fund and 6k in the bank, they are perfectly fine.

level 3

Aw, cool, didn't even see that, most just spell it out :D

Sounds like the OP has nothing to worry about, even if it were low, (s)he has no car payment to worry about.

level 1
-12 points · 8 months ago(0 children)
level 2

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