Author Topic: Pay off or Savings??  (Read 8561 times)

Offline JGreene

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Pay off or Savings??
« on: May 18, 2010, 05:05:18 AM »
Got a check the other day that wasn't expected.  It came as a result of a refinance we did a couple years ago and somehow through my own ignorance, I didn't realize what happened to the escrow account... well, I have it now.  Nice check to get without expecting it.

I could now pay off the car, which I am paying 4% interest on, but I only have another 14 months to pay. OR  I could just bank the money to use as a down payment on a piece of land that we're still shopping for.  The car loan is no burden, and as much as I'd like to pay it off and claim my debt independence, I feel better having the cash to put toward the land or just in case.  I already have 2 months worth of emergency funds and no CC debt.

Maybe there's another aspect that I'm not seeing at the moment.

Offline outdoorman63

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Re: Pay off or Savings??
« Reply #1 on: May 18, 2010, 09:32:37 AM »
in my opinion, i think the cash as emergency funds or land funds works out better, since you only owe 14 months on the vehicle..the interest rate isnt bad..if you owed longer i would probably say pay off the car...

Offline Texasbound

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Re: Pay off or Savings??
« Reply #2 on: May 18, 2010, 09:53:39 AM »
I'd split it in half.   Knock down the car payment and save a little bit of interest.  Plus put a little into savings to fall back onto in case of emergency.  If you have some saved, you could then pay off the balance of the car if you had to.

Offline ModernSurvival

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Re: Pay off or Savings??
« Reply #3 on: May 18, 2010, 10:25:37 AM »
Since you have 2 months of emergency I would pay off the car and right  now.  Why?  Simple,

Let's say you didn't have the money and the car was now paid off, would you borrow the money back against the car and put it in the bank?

When we paid off my Truck (the last 7500 bucks) my wife wanted to save the money in the bank and pay the truck in payments.  I asked her the above question and her response was

Long pause, irritated look and then, "damn it, fine, just send the check".  ;D

Let me be clear there is absolutely ZERO difference in the two ways of seeing it.  In one way you take the money and pay the bill the car is yours and you have no debt.

The other way you have no debt, don't have the extra money and choose not to borrow against the asset.

So again if INSTEAD of a check from the mortgage people, if the car people called you and said your error was with them and they sent you the title and said your car is paid for, would you call them and ask the to re extend the loan?  Nope you would not even think of it would you?

There is something more that you won't experience until you get debt free.  I absolutely promise you (not even considering the 4% interest) that if you do this now at the time you would have paid the loan in payments you will have both no debt and more money saved than if you hold onto the money and make the payments.  The first time you realize that all debt except the house is gone a switch will turn in your head, one that says NEVER AGAIN, it is the most empowering thing you can imagine.  You will begin saving money like never before.  Odds are a year from now you will  have doubled your savings.  

If you had no savings I would consider reserving some or all of the cash but in your situation, pay the bill, you won't ever regret it.

« Last Edit: May 18, 2010, 11:40:04 AM by ModernSurvival »
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Offline JGreene

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Re: Pay off or Savings??
« Reply #4 on: May 18, 2010, 05:11:21 PM »
I suppose too, if I pay off the car, I won't have that cash sitting in the bank just begging to be spent on ... [fill in the blank].  Fortunately, I already .... (excuse me... Shannon Bream just appeared on my TV and I lost my trend of thought)...  wow... where was I... :)    I already have some bigger preps budgeted, but there's always something else.

On the other hand, its going to take me a year to build up the funds needed for a down payment on that 10 acres...  Still thinking...  thanks for the input!

Offline ModernSurvival

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Re: Pay off or Savings??
« Reply #5 on: May 18, 2010, 06:31:05 PM »
On the other hand, its going to take me a year to build up the funds needed for a down payment on that 10 acres...  Still thinking...  thanks for the input!

Trust me the truth is it will take you less time if you pay off the last debt now.  You won't understand it until you hold the title, don't get a bill and actually save more money in the first moth than the payment would have been.  Two months in you will be looking at your savings account and thinking hmmmmmm, I think I can transfer a bit more.  A year later you won't even really understand what happened, money will cease being "scarce".  I can only say trust me at this point.  Again though I ask, if the error was made on the car side and they called you today and said you were free and clear and sending the title to you, would you borrow the excess back on the car?  If you wouldn't than you just need to realize this is exactly the same.

Jack Spirko

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"If some of our teenage thrill seeker really want to go out and get a thrill.  Let them go up into the north west and let them tangle with a Grizzly bear  or Polar bear or brown bear and get that effect that will cleanse the soul".  ~ Fred Bear



Offline survivininct

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Re: Pay off or Savings??
« Reply #6 on: May 19, 2010, 06:10:46 AM »
Pay off the truck, then pay yourself the payments into your savings account or kill other debts. 
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Offline harrihiker

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Re: Pay off or Savings??
« Reply #7 on: May 19, 2010, 08:05:53 AM »
A year later you won't even really understand what happened, money will cease being "scarce".  I can only say trust me at this point.

I can tell you from my experience this is true.
My wife and I are about a year out of debt and we are still confused every month by the surplus in our checking account.
Even with a new baby and the wife laid off from work!

Offline ModernSurvival

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Re: Pay off or Savings??
« Reply #8 on: May 19, 2010, 08:29:26 AM »
I can tell you from my experience this is true.
My wife and I are about a year out of debt and we are still confused every month by the surplus in our checking account.
Even with a new baby and the wife laid off from work!

That is what I am sayin!  It almost seems that money begins to multiply once debt is dead.  There are a few logical reasons for this but the biggest to me is mental and emotional.  Once you have no debt your spending changes, I say almost unconsciously.  This applies even to people who paid of very "manageable debt".

It also prevents new debt.  The only reason you are stressed about your money for the land purchase right now is the car debt.   ;)  I know this all seems counter intuitive but look to the masses for what being "intuitive" about money gets you.
Jack Spirko

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"If some of our teenage thrill seeker really want to go out and get a thrill.  Let them go up into the north west and let them tangle with a Grizzly bear  or Polar bear or brown bear and get that effect that will cleanse the soul".  ~ Fred Bear



Offline SymteX

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Re: Pay off or Savings??
« Reply #9 on: May 19, 2010, 11:40:35 AM »
I have been debt free less the house for about 5 years now. I will be able to pay off my house in 10 years instead of the 20 years I financed, at the rate im going.

Offline LICountryBoy

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Re: Pay off or Savings??
« Reply #10 on: May 19, 2010, 11:49:12 AM »
Payoff the debt.
Don't look back.
It's just one less thing you don't have to worry about.

If you feel bad or strange about not making payments after paying off the debt, you can send me a check every month and I won't even charge you the 4%. I'll put it to good use.



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Offline jbritely

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Re: Pay off or Savings??
« Reply #11 on: May 19, 2010, 01:19:10 PM »
Well, last month I had to choose between paying a small part of a big debt or completely getting rid of a small debt on a car.  The car was at a much lower rate but I ended up paying it off anyway because it would be completely gone.  It doesn't really make financial sense in the short run to pay off the loan with the better rate but it was a nice morale booster.  I think it will make sticking to the debt reduction plan easier/more likely.  (I think Ramsey argues the same thing)

My current plan to get all debt except the mortgage paid off an then think about finding some land.  I may change this plan, but for now it is a nice motivation to pay off the debt.  Owing some land is a big goal and what I try to think of whenever I am eying a "nice to have" toy.  The only thing I have really cheated the budget for recently is to expand my garden (but I'm hoping that will pay for itself this summer).
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Offline JGreene

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Re: Pay off or Savings??
« Reply #12 on: May 19, 2010, 05:49:21 PM »
Thanks guys... looks like I'll be paying off the car!   Time to turn the page on that budget notebook and do some more figurin'.

Thanks again, I'll let you know how it works out.

Offline cpf240

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Re: Pay off or Savings??
« Reply #13 on: May 19, 2010, 05:57:52 PM »
I didn't see this mentioned, at least not in so many words, but.. if you pay off the car loan, then you are also paying yourself 4%. How easy is it to earn 4% in a savings account? It's not that easy these days.

I agree with the person that suggested paying off the loan, and then continue to make the same payments, but to yourself. That money, and more, will be back in your pocket before you know it.

Good luck!
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Offline JGreene

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Re: Pay off or Savings??
« Reply #14 on: June 12, 2010, 06:11:45 AM »
Balance on new car loan... $0.00   :)     

Offline monkeyboyf

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Re: Pay off or Savings??
« Reply #15 on: June 12, 2010, 04:56:03 PM »
Good for you, Ray!  Feels great,huh? :o
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Offline cpf240

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Re: Pay off or Savings??
« Reply #16 on: June 12, 2010, 11:23:03 PM »
That is awesome, congratulations!
Ah, curse your sudden but inevitable betrayal! - Wash


Offline beachwalker

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Re: Pay off or Savings??
« Reply #17 on: June 25, 2010, 05:42:42 PM »
Nothing like a paid off car!!!

 :beer:

Offline Nadja*isk*en*isk*ie

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Re: Pay off or Savings??
« Reply #18 on: August 29, 2010, 10:19:56 PM »
I'd split it in half.   Knock down the car payment and save a little bit of interest.  Plus put a little into savings to fall back onto in case of emergency.  If you have some saved, you could then pay off the balance of the car if you had to.

This

Offline JGreene

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Re: Pay off or Savings??
« Reply #19 on: August 30, 2010, 06:24:53 AM »
This
Because my interest rate was so low... 4%... I probably would have put it toward savings if I didn't already have a few months of 'emergency savings' put aside.  Because I already had that, I paid it off.   Now its a matter of making sure I put that 'payment' about $365 toward savings each month.  Eventually I'll need to buy another car, hopefully not this one.