Friday, February 13, 2009

Friday the 13th Is My Lucky Day – I Paid Off My Car Loan!!

According to my original Snowball Debt Reduction Plan, I was planning to pay off my car loan in July. Instead, I decided to take money from my earmarked savings and my Emergency Fund to pay off my car loan early. Woo hoo!!

MSN Money recently highlighted a post from Kristy at Master Your Card, that discussed whether using one’s EF to pay off a car loan is appropriate. (Blogger Kristy opined that an EF should not be used to pay off a car loan.)

I felt a bit defensive, so I left a comment that one should do what one feels comfortable doing. I personally would not feel comfortable wiping out my EF or reducing it down to $1,000 to pay off a car loan, but I certainly felt comfortable spending $1,716 of my earmarked savings (bye-bye computer) plus an additional $2,219 of my EF to pay off my car loan. I still have $6,089 remaining in my EF and $1,908 remaining in my earmarked savings. Admittedly, it’s not much, but I still have something left.

Additionally, my EF is currently only earning up to 3.05% APY in interest, but my credit union is charging 4.75% APR interest on my car loan. Paying off my car seemed like a no-brainer.

Before I go on, here are some facts about my car loan:

Date borrowed: 12/15/2005
Total Purchase Price: $25,500 incl. tax, title and registration
Amount borrowed: $25,000
APR: 4.75%
Term: 5 Years (But paid off in 3 years, 2 months.)
Minimum Monthly Payment: $469.10 (Total of 60 Payments: $28,146)
Total Paid: $27,336.24
Interest Paid: $2,336.24
Interest Saved From Early Pay-Off: $809.76

Now that my car loan is paid off, I’m planning to use the car payments to pay off my credit card. Since my credit card debt is currently at 0% APR, I will put the car payments into a “high”-yield savings account until the promotional 0% interest-rate expires in October.

I’ll also remove the Blue Book value of my car in my net worth calculation at the end of the month since my car is a depreciating asset and I have no intention of selling it any time soon. I might as well take the write down now, rather than later.

I plan to keep my current car for another 10 – 12 years. If all goes to plan, (knock on wood), I’ll pay off all of my outstanding debts in 6 years. I can spend the final 4-6 years of my current car’s life to make “imaginary car payments” to myself to save up for a new car that I will buy with cash-ay. I vow NEVER to borrow money to buy a car again.

Anyhow, hope you're having a great Friday the 13th. I certainly am! :-D Hope you have a Happy Valentine’s Day tomorrow too!


K-money said...

Congratulations! It is awesome to have a car paid off, just think how awesome it will feel when EVERYTHING is paid off.

My car is paid off, too. I put money every month into a "new car savings" so I can buy my next car with cash.

444 said...

Congratulations! I drive a paid-for car, too, and it is a great feeling.

Mode Girl said...

Congrats! I can't wait to pay my two cars off. I going to keep my cars a long time too.

Anonymous said...

Great news! I plan to do the same thing once I pay it off until the bitch dies, I am not buying any cars :)

Debtfree2009 said...

Congrats. Doesn't if feel great? I paid off my credit card this month and now only have my car left.

Sharon Rose said...

Hi there-A big congratulations and a woo-hoo to you my dear!! You've done what is right for you and it seems like you have a good plan of action-I'm really pleased for you my dear!!

jpkittie said...

that is fantastic!!!! an extra $470 in the budget is huge!!! I am with you --- sometimes it is about having the most back into your budget... that is how I have decided to pay my bills down. Whatever gives me the most relief will go down first!

your car is going to feel amazing to drive now that it is pif!!!!

frugalCPA said...

Hey! What good news! And I agree with you - putting your car in your net worth just doesn't seem right, does it? It kind of misleads since you're not ever going to see the $ it supposedly represents as long as you keep the car. Net worth never has been as telling as cash and cash equivalents. :)

Sallie's Niece said...

Congrats, that's awesome!

Louise said...

congratulations! it's great not to have a car payment.

after reading this you have me rethinking my strategy of paying off my credit card at 0% when I could be earning 7% with the money in ING until the 0% runs out... I need to think about this.. thanks

Money Funk said...

Totally freakin' fabulous on the job well done! I think you made the right choice. And now the Snowball begins with credit card payment! Sweet! :)

Miss M said...

Congrats on paying off the car, that will make a huge difference on your monthly cash flow. Sorry about the computer fund, we can't have it all. I'm still saving up for mine too, hopefully by April. I want to keep my car another 10 years too, how funny.

Ms. MoneyChat said...

yay shtinky!!! i have made the same vow of car loan celibacy;-). NO MORE CAR LOANS!!!

Bouncing Back said...

My old car last 10 years and 232,000 miles. I do have a loan for my new to me car. My feeling is take care of your car and it should last at least 10 years!

Great job on knocking out one more bill!

paranoidasteroid said...

Yay! Congrats!

Sometimes the "financially correct" decision isn't always the right one. Although in this situation, it sounds like you made the smarter decision. You'll be able to beef your savings back up in no time!

Sunflowers said...

Congrats!!! :D