I have a personal loan that I owe around $8000 at 5.9% I have no ther debt whatsoever. I have no savings. Should I pay off the loan or start savings? a little of both? if so how much should i save before i pay off?
2006-09-17 06:09:29 · 14 answers · asked by x98lbwuss 2 in Business & Finance ➔ Personal Finance
Pay off! Then start saving the money that you would have been paying back on the loan!
2006-09-17 06:11:44 · answer #1 · answered by Brown_Eyed_Girl 4 · 0⤊ 0⤋
Save first. There are some fairly good savings accounts and CD's that can earn you more than 5% each year.
Your loan is only 5.9% this is a difference of .9% of $8,000 which is about 72 dollars a year or 6 bucks a month.
So continue making your loan payments, but put the extra in a savings account or a CD. Look around first for the highest savings or CD rate you can find.
I mean, technically you will make some more money by paying down the debt first, AS LONG AS savings rates remain fairly low, but rates are going up. And they might go up faster than the rate on your loan. Or not, who knows for sure.
But in terms of liquid capital, emergency savings, and peace of mind - start a savings plan. You can always change your mind later and take the money out of savings to pay down the loan (but for that amount and interest rate, I wouldn't do it.)
It would help to know how much $8,000 is for you (a lot/ a little), and how much you earn. But in general, keep the money where it benefits you the most.
How much should you save? Depends on how much you are going to need, which depends on what you are trying to do, and when. There are no absolutes.
2006-09-17 13:48:16 · answer #2 · answered by J. C. 6 · 0⤊ 0⤋
I say with whatever extra money you have put about 80% toward paying off the loan and the remaining toward savings. Pay more than the minimum payment on the loan if you can. Unless it's a student loan or tied to a business the interest isn't deductible on your taxes so you are just incurring additional expenses each month that you don't need to be incurring. The sooner you pay off the loan the more you will save in interest expense. But don't forget that you need some emergency money, which is why I said 20% to savings. If you dump all your money towards paying of the loan, what happens when you need some extra cash. Another loan?
2006-09-17 13:24:06 · answer #3 · answered by Anonymous · 0⤊ 0⤋
Do both at the same time that way if your car breaks or the furnace stops you can use the savings to pay for repairs without taking on more debt.if you pay off the loan and lose your job then you will have no savings,its better to have some savings to fall back on.The interest rate is low enough that you should not worry about rapid repayment of this loan.
2006-09-17 13:30:47 · answer #4 · answered by Anonymous · 0⤊ 0⤋
If you're going to put your money in a savings account I would recommend paying off your loan first. An average high yield savings account usually yield less then 5%. I would recommend putting any extra money you plan to save toward the principle of your loan to pay down your loan sooner. Then once you loan is payed off I would suggest you look into high yield saving (ING direct, Citibank, HSBC etc..) or stock, bond, mutual funds...I just did the same with paying off my car loan and I came out better doing it this way. I hope this helps.
2006-09-17 13:21:44 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Blah, blah, blah...too many people have been listening to Dave Ramsey...It is all about cash flows...I personally think it's dangerous to be operating without at least some cash for emergencies. For example, what happens if your car breaks down? It's all well and good that you've been paying off your loan, but now your car is busted and you don't have any money to get it fixed. I would save until I got an emergency fund of at least a couple thousand $$'s and then worry about paying off the loan.
2006-09-17 13:51:02 · answer #6 · answered by michael.avery 3 · 0⤊ 0⤋
Pay off your loan first, as the interest you earn in savings is far less than the interest you'll save in paying off your loan. Then continue making the loan payments once it's paid off, by using that same amount of "payment" and putting it into your own savings account.
2006-09-17 13:18:19 · answer #7 · answered by Just Ducky 5 · 0⤊ 0⤋
In theory paying off the loan is saving you money by not paying more in interest. But we all know that you need some type of savings...so try doing both. My wife and I learned quite a lot from mycreditadvise.com it really helped us to learn how to manage our finances.
Good Luck!
2006-09-17 14:08:06 · answer #8 · answered by Anonymous · 0⤊ 0⤋
Pay off the loan
When its paid off, keep depositing the payment into a savings account
2006-09-17 13:13:07 · answer #9 · answered by DrPepper 3 · 0⤊ 0⤋
If you have the discipline to put it away and earn more than 5.9%, save it. If you're not sure you can earn that much (you should be able to -- even CDs pay that much now) or you're worried you'll be tempted to pull money from the savings, you should pay off the loan.
2006-09-17 13:11:49 · answer #10 · answered by Jason M 2 · 0⤊ 0⤋