If I have the cash, should i pay off car loan? - debt, loans, credit cards, banks, insurance... - Page 3 - City-Data Forum

PureHapa · 08-21-2012, 05:43 PM

All my adult life I have bucked everyone's sage advice and always paid off loans when I could. Paying interest irks me no end. As everyone around me were leveraged up to their eyeballs, I always came out ahead.

Now in middle age, I have no economic worries, while my leveraged friends have seen many pitfalls due to their ingrained habits. There is a lot to be said for this. The psychological affect of it is beyond measure.

LordSquidworth · 08-21-2012, 08:30 PM

Quote:

Originally Posted by PureHapa

All my adult life I have bucked everyone's sage advice and always paid off loans when I could. Paying interest irks me no end. As everyone around me were leveraged up to their eyeballs, I always came out ahead.

Now in middle age, I have no economic worries, while my leveraged friends have seen many pitfalls due to their ingrained habits. There is a lot to be said for this. The psychological affect of it is beyond measure.

The interest rates of today are pretty much nothing.

Where I would completely agree that thinking was well worth it in the past, the interest rates of today need taking advantage of.

My mothers first house was at > 10%. Mine was <4%.

fearnofish · 08-22-2012, 05:24 PM

Quote:

Originally Posted by lenniel

I have over $400K in liquid cash and am considering paying off a $38K car loan (1.9%/60 months) and a $25K student loan (2.25%).
Don't carry credit card debt but have a hefty mortgage of $3K/month.

While I understand the basic principal of 'can I earn more investing the money versus whatever the loan is costing', I guess there's something to be said about ridding myself of debts.

What say you?

Here is the way I have heard it put.. If your car was paid off would you borrow 38k against it? If not then pay it off.
I would say pay it off today.

fearnofish · 08-22-2012, 05:25 PM

Quote:

Originally Posted by PureHapa

All my adult life I have bucked everyone's sage advice and always paid off loans when I could. Paying interest irks me no end. As everyone around me were leveraged up to their eyeballs, I always came out ahead.

Now in middle age, I have no economic worries, while my leveraged friends have seen many pitfalls due to their ingrained habits. There is a lot to be said for this. The psychological affect of it is beyond measure.

Couldn't say it better. Pay off the stupid debts and be done with them. Why in the world would you keep them around even at 0% interest if you have the capabilities to pay them off.

lenniel · 08-23-2012, 06:35 AM

Quote:

Originally Posted by fearnofish

Couldn't say it better. Pay off the stupid debts and be done with them. Why in the world would you keep them around even at 0% interest if you have the capabilities to pay them off.

I don't disagree but we have a bunch of big changes coming up (sell house, relocate, buy house, job change, etc) that my fin advisor wants me to hord cash for.

In 6 months, after everything is settled down, he thinks that would be the time to pay off these two debts.

duster1979 · 08-23-2012, 11:09 AM

Quote:

Originally Posted by lenniel

I don't disagree but we have a bunch of big changes coming up (sell house, relocate, buy house, job change, etc) that my fin advisor wants me to hord cash for.

In 6 months, after everything is settled down, he thinks that would be the time to pay off these two debts.

Because we're talking about such a short length of time, and because you do have the assets available to write a check for everything if you had to, I don't really see anything wrong with this.

lifelongMOgal · 08-23-2012, 03:55 PM

Quote:

Originally Posted by lenniel

I don't disagree but we have a bunch of big changes coming up (sell house, relocate, buy house, job change, etc) that my fin advisor wants me to hord cash for.

In 6 months, after everything is settled down, he thinks that would be the time to pay off these two debts.

Paying off the student loan is a no-brainer; do it ASAP. That should have been done some time ago given your cash & investment disclosure. If you think you'll be trading up into a newer vehicle in the next 9-12 months, leave the car loan alone. If you are going to keep the car more than 9-12 mos, pay it off tomorrow.

Is the real estate market in your current area such that you will be able to sell and walk away with cash at closing? If so, and, if you price your home to sell relatively quickly, then I wouldn't pay the principal down on that either. But, I also wouldn't close on the new home prior to settling the sale on the current one. No one needs to accumulate the debt of two mortgaged homes right now unless they could pay them both off in the wink of an eye.

This is what I would actually suggest moving forward with the new home:

Consider needs rather than luxury wants and creature comforts. In otherwords, buy well below your means. Consider small acreage enough to provide 40% of your family's food needs and away from a major city if possible. And, strongly consider paying cash for the new home.

Frankly, the size of your current mortgage and car loan are pretty high, IMO, for having approx. $1 million in investments and cash combined. My goal would be to slash your current debt at least in half, if not being debt free with at least 1 year cash in emergency reserves.

My perspective is that your home/personal real property (not investment property) should be worth a maximum of 20% of your total assets.

Just my opinion, YMMV.

mattforys · 10-16-2012, 07:25 PM

You should pay off both the vehicle & student loans, and any other consumer debt or micro loan you may have, then pay at least $200k on your house. After about 4 months, you should then refinance your house to bring down your current interest rate (assuming that its currently above 3%). How close to retirement age are you? if you are above 45, you could stick at least $120k in a fixed annuity that you can draw from that guarantees a fixed percentage return (depends on your age though ...). The Feds have promised not to raise interest rates until, at least, 2015 .. so you have some time to sit on that annuity for a while before market rates even catch up). There are several good areas to invest your money other than the stick market that yield high and stable returns.. including micro loans to others (this is getting bigger and bigger here in the US right now, and people are making alot of money being "the bank" for small businesses that qualify).

ChiGuy2.5 · 10-17-2012, 07:34 AM

Nobody mentioned this so I will:

1. Pay off Student Loans first. They are a higher interest than your car and are not dischargeable in bankruptcy.
2. Only pay off the loans if you cannot earn more interest than they are costing you.
3. It sounds like you WANT to pay them off because it will make you mentally less stressed. I would say that is perfectly okay.

lenniel · 10-17-2012, 07:58 AM

Thanks for the advice/comments all. It's nice to have civil, educated discussion on CD without it turning into a pissing match and online tough guy contest.

So, here's the update:
Accepted the new position but at a 15% decrease in salary.
Bought a house in new location but it's new construction and we won't close until Mar/Apr 2013. Therefore, I won't be locking the mortgage until early 2013 and I'm hoping that we can be in the low 3's at that time.
Sold our current house (losing about $100K on it since we bought at peak) and close late Nov. Will be renting in new city until house is done.

Haven't paid off car or school loan. I'm leaning towards paying the school loan soon though so we then only have the car/mortgage.