I paid off my creditcards, now what should be my next goal: Pay off my car or start a rainy day fund?

Question

I paid off all my credit-cards, now what should be my next goal: Pay off my car or start a rainy day fund?

The way I put miles on cars by the time pay it off Ill have to turn around and get another one so Ill never be without a car payment.

Or I can create a savings account (I have a 401K but its not liquid & neither is a paid-off car). But, of course, it won't earn enough money as I would save on the interest I pay on my car note.

Just curious: What do you think?

PS I my car note is low interest rate (6% I think) because I have good credit. And I only had credit cards because of a home remodel and a layoff, not because I am used to charging alot.

Answer 1

Since it seem the car payment will likely be there again after you pay this one off, the rainy day fund seems to be the more likely option..always nice to have a reserve put away so you can avoid using any credit card again.

Answer 2

I would divide the money. Pay off the car and put money away.

A good rule of thumb is to finance your asset purchases over the life of the asset. A new dress is not an asset as it has no financial value. A car depreciates but has value while you use it. If you are "upside down" on your car loan, pay that off first. I would try to owe no more than the car is worth to a dealer. That is using debt responsibly.

If you have paid off your credit cards, that is your rainy day fund. You can always borrow if you need it. Use the savings to add to your 401K where it gets matched and is tax free. If you have funds left over, start saving to have a cushion.

Answer 3

** Pay off the car. **

Regardless of the amount outstanding for the car, you are today paying interest on that amount.

You wont earn as much interest in a saving (rainy day) account, so any money in savings is not growing as fast as the amount you are being charged in interest.

Lets imagine you can afford to put aside $400 a month into a
rainy day fund. If you were to put that on the loan that's $400
less that they can charge you interest for.

If that single payment was put in on a 10% loan you would in the end have paid the lender $40 less per year, each and every year. So if you had 3 years to go you would have saved $120. So imagine the savings if you did it every month and its even greater if the interest rate is higher.

Answer 4

Emergency fund, you will have 100% chance of something bad happening. If not this year then another year. Your car will have a problem, you will have accidents with deductibles, you will lose a job sooner or later, and you are bound to be sick someday,
Having even a small emergency fund makes these life events go from emergencies to just stuff that happens. Even a single $1,000 in an easy access account can keep you from stress or getting into debt most of the time.
Don't give up being without car payments someday, you can get a used car next time with smaller payments and pay it off and save for a better car soon you will have cars with resale value that last for many years. My truck is 10 and never had payments, it can be done.

Answer 5

That depends on Age of car, Years or months to pay, do you buy new or used cars. Say if you have a Three year loan, and you can pay off in Two, trade up to a new car with nice trade in value and rebate you can come out ahead. Although some say that a new car has a drop in value as soon as you buy it, the rebate will off set that. Some new cars have loans at far less interest than used. This alone can save hundreds of dollors.
Yes do save some money back too.

Answer 6

I'd use half the money you'll be saving by not making payments to credit card company's to pay the car off a little faster and the other half to start that rainy day fund.

Answer 7

I believe that you should try to spread the cost of lifestyle assets such as cars over the period that you will enjoy the item. That is, you should finance vehicles and not worry about trying to pay the loans off early. However, you should commit to saving some money for investment or future emergencies, or a house deposit or education funding.

Answer 8

I will always recommend paying off debts as fast as possible. You certainly should have a savings account with a balance to take care of unforeseen needs, but aside from that - pay it off. One statement you made that no one else has addressed is the statement you made concerning the amount you save by not needing full coverage insurance. This I would not encourage. Depending on the age of your auto of course. but - think of it this way --- it would be a 2 way loss without full coverage insurance. 1) if the auto were totaled - you would receive anything to go toward another auto 2) you would still have to get another auto. Therefore you are out the value of the car twice. Consider keeping the full coverage insurance.

Answer 9

It would be nice to have that car payed off I know I am in the same spot right now myself.
I would pay the car off first but do keep in mind that you should have enough money in savings to last you up to 3 months incase the unexpected does happen.
I am taking a personal finance class right now and these sheets really helped me. It really helps you to see what you really are spending your money on, you might be able to see that you need to cut back on some things that aren't as needed as you thought they would be.

http://mypage.slcc.edu/cp/grouptools/fileshare/42370/43333/Personal%20Income%20Statement%20Fall%202007.xls

Answer 10

If the loan rate is higher than what you would make on the savings , pay off the loan .

If you can make more on savings than the loan ,
Put it in savings .

ALWAYS go where the return is best .

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