My wife and I are now car debt free for the first time in 5.5 years, with the final payment for her car happening a couple of days ago. If all goes to plan, this will be the last time we ever have car loan.
A few weeks ago, I wrote about the dilemma I had on what my next target of my debt snowball will be. I had a few weeks of time to think about the positives and negatives of my various choices, trying to find something that makes the sense to my wife and I.
This time around, I am going with the numbers approach for debt reduction and seeing how this works mentally.
As much as I want to get rid of the Sallie Mae student loan, it has a really small payment ($105 a month) and by far the lowest interest rate of all of my loans (3.25%). While it is a variable interest rate, it doesn’t look like interest rates are going to raise much if at all for the next year given the economy. Plus the interest on this loan is tax deductible.
I’m going to go with paying off the Hyundai Elantra car loan. It is a huge loan payment to begin with ($317 a month) and I am paying a lot of interest on it right now given it is only 7 months old (with 4.5 years left on it). I can just about double the payment, which should cause the loan balance to drop significantly. Combined with potential big extra payments throughout the year on-top of this doubled loan payment, this seems the right way to go. In the end, I save a ton of interest with this method and the psychological benefit of having no car payments? Priceless!
After that car loan is gone, my wife and I will just have our student loans and mortgage to pay off. Then we can really go ballistic paying those loans off without worrying about car payments.
With the new year and new decade, I would like to renew my focuses on my wife and I’s finances. We made significant progress for most of last year with my Subaru Forester car loan, but having to buy a new car in the summer also stopped my accelerated plan to repay the Subaru loan and stopped by debt snowball. This is how we are going to fix that this year.
Financial Goal #1 – Pay off Subaru Forester loan
With my next payment halfway through this month, the Subaru Forester loan will drop below $2,000. Being this close to paying it off, I really want to get this done. Thanks to some job related money coming in sometime in January and my tax return that usually comes in mid-February since I file my taxes as soon as I get the relevant paperwork, I think there is a very good chance I could have it paid off by March. Maybe even sooner.
With that, $225 a month becomes available and is a significant victory in my budget.
Financial Goal #2 – Look into credit unions
Within short walking distance of my work, there is a credit union branch that I am going to look into. Not only are credit unions well-known for their customer service and great rates, but this one also has an awesome feature of letting me scan checks and depositing them online. Combined with many ATM’s in gas stations and stores being free and it is very tempting to switch from Bank of America to them. I am also going to see if there is any chance of refinancing my new car loan with them.
Financial Goal #3 – Saving for a new house
With the Subaru Forester loan being paid off in the next 3-4 months, I plan on doing a debt snowball into a savings account with the idea of selling our condo towards the end of 2010 and moving into a house. We are ready to own a house. Given that houses will probably not be any cheaper than they are now, this is a good time to take advantage of the market.
Financial Goal #4 – Double the emergency fund
Even though the economy is slowly showing signs of turning around, it is clear that we need a better emergency fund as we now have a bare minimum $1000 tucked away. I would like to at least double my current emergency fund, just to give us a little more cushion to work from.