I have officially paid off my first major loan, the car loan for my wife’s Subaru Forester. What a fantastic feeling that is! Yet it opens up a new dilemma that I am still struggling to figure out.
The question is, what is next?
After some careful deliberation, I have narrowed it down to three possible options:
- Pay off one of my student loans (this one is a private loan with Sallie Mae). This loan has the smallest balance of either my wife or I”s loans and would probably take about a year to pay off if all goes right. It currently has the lowest interest rate (3.25%) of any of our loans, but it is also a variable interest rate that has gone as high as 8.5% in the past. Plus there is always the benefit of getting Sallie Mae out of my life.
- Pay off the other car loan for the new car (2009 Hyundai Elantra SE). This would probably take near 1.5 or 2 years to do, but has a higher interest rate (5.5%) and the loan is only 7 months old. This means right now I am paying a lot of interest on the loan and paying now could save significant money down the line. Plus the huge benefit of not having any car payments and this would net a significant boost to the next debt snowball.
- Take the money we would put towards payments and have it go to a savings account. Given the economy, it never hurts to have some money stashed away. If the account balance gets larger then one of the loan’s balances, I can always due one big payment and close out the loan. If an emergency comes up, then we have money readily available.
Tough choice. Still thinking it through.